War escalation to cause PH inflation uptick – economist

PHILIPPINE headline inflation could hit as high as almost 5 percent this year if the Russia and Ukraine war escalates, an economist said on Thursday.

“Our base case for inflation is around 3.7 percent. However, with the present conditions, should the war in Ukraine escalate, inflation could probably move between 4.5 to close to 5 percent,” Jonathan Ravelas, BDO Unibank chief market strategist and first vice president, said during an economic forum organized by the Philippine Chamber of Commerce and Industry.

Ravelas said global commodity prices, especially oil, went up due to resilient demand, depleting inventories, structural-under investment and the geopolitical conflict in Ukraine.

“If we are to look at the implications for the Philippines, it would manifest with higher inflation risks,” he said.

Ravelas said rising commodity prices translate to higher domestic inflation.

“Roughly 63 percent of our inflation basket is affected by higher commodity prices of which 37.1 percent is food and non-alcoholic beverages. We have housing, water, electricity, gas and other fuels which account for 21.4 percent, and the transport sector accounting for 9 percent,” he said.

“That’s the reason why our base case is 3.7 percent, bad case is 4.5 percent and worst case is close to 5 percent,” he added.

Headline inflation hit 3.0 percent in February.

The Bangko Sentral ng Pilipinas (BSP) earlier said higher oil prices due to the ongoing tensions between Russia and Ukraine will cause the country’s inflation to pick up.

The BSP said inflation for this year could settle within the 3.7 to 3.4 percent range. In 2021, it settled at 3.9 percent.

BSP Governor Benjamin Diokno said that based on the BSP’s oil price simulation, inflation could settle above the target range of 2.0 to 4.0 percent, only if crude oil prices average higher than $95 per barrel in 2022 and 2023.

Below $95 per barrel, inflation would settle within the target range.

Diokno said, however, that under a worst-case scenario or if global oil prices reach $120 to $140 per barrel this year, inflation could hit 4.4 to 4.7 percent.