Oil prices seen to cause local inflation rates to hit ceiling

PERSISTENT oil price strength could raise the likelihood of inflation readings to hit the ceiling of the Bangko Sentral ng Pilipinas' (BSP) target by the second half of this year, if not earlier, according to analysts.

- ANDREA E. SAN JUAN

According to the latest inflation outlook of the Union Bank of the Philippines (UBP): "With rice deflation expected to fade and climate-related agricultural disruptions likely as the 3Q monsoon season approaches, persistent oil price strength would only tighten the path for inflation—raising the probability of readings near the upper bound of the BSP's target by 2H26, if not earlier."

The bank said, however, that near-term inflation dynamics remain "supportive" despite rising uncertainties in the second half.

It further explained that the headline 2-percent year-on-year print suggests that price pressures are beginning to normalize.

"These readings remain well anchored within the BSP's target range and do not threaten the low rate environment that continues to fuel the search for undervalued index names although the outlook for the second half is destined for the upper half of the BSP's target range," the UBP said.