DEPDev warns of severe inflation risk as Middle East conflict escalates

The Department of Economy, Planning and Development (DEPDev) warned that inflation in the Philippines could surge beyond 7 percent if the conflict involving the United States, Iran, and Israel intensifies and disrupts global oil supplies for an extended period.

During a briefing to members of the House of Representatives on Tuesday, Socioeconomic Planning Secretary Arsenio Balisacan presented two possible economic scenarios outlining the potential impact of rising oil prices on the country’s inflation outlook and broader economy.

Under the first scenario, global crude oil prices would average around $100 per barrel in March and remain above $80 per barrel until May. In the second and more severe scenario, crude oil prices could climb to an average of $140 per barrel and stay above $80 per barrel until September.

Balisacan said that under both scenarios, inflation could exceed the government’s preferred range of 2 percent to 4 percent due to higher fuel costs and rising prices of non-food and food commodities.

In the first scenario, inflation is projected to accelerate to between 4.5 percent and 5.1 percent in March before easing slightly to 4.5 percent to 4.8 percent in April. For the full year 2026, inflation would average between 4 percent and 4.2 percent before further slowing to around 3.5 percent to 3.6 percent in 2027.

Under the more severe scenario, inflation could surge to between 6.3 percent and 7.5 percent in March and remain elevated at 6.4 percent to 7.5 percent in April. Inflation for the entire year of 2026 could average between 4.5 percent and 4.8 percent before easing to 3.6 percent to 3.7 percent the following year.

Before the Middle East conflict erupted, DEPDev had already anticipated a modest rise in inflation due to base effects from the relatively low inflation environment in 2025. In its pre-conflict baseline forecast, the agency expected inflation to average 3.6 percent in 2026 and 3.2 percent in 2027.

The potential spike in oil prices could also significantly affect domestic fuel costs. Under the severe scenario, diesel prices could jump by as much as 62 percent in March, reaching about P96.76 per liter compared with the baseline estimate of P59.68 per liter.

Gasoline prices could also rise sharply, increasing by as much as 52 percent to around P88.79 per liter from a baseline projection of P58.53 per liter.

Fuel retailers this week announced substantial price increases, with gasoline expected to rise by P7.00 to P13.00 per liter, diesel by P17.50 to P24.25, and kerosene by P32.00 to P38.50.

The surge in oil prices follows the closure of the Strait of Hormuz, a critical global shipping corridor located between Iran and Oman. The waterway is considered the world’s most vital oil export route, linking major Gulf producers to the Gulf of Oman and the Arabian Sea.

Balisacan also warned that the conflict could significantly affect overseas Filipino workers (OFWs) in the Middle East, potentially leading to lower remittances if deployment bans and repatriation measures are implemented.

In the first scenario, assuming a total deployment ban and the repatriation of about 10 percent of Filipino workers from conflict-affected countries, the number of OFWs abroad could fall by an estimated 551,897. This could result in a decline in remittances of around P226.568 billion compared with 2025 levels.

Under the second scenario, in which deployment restrictions and repatriation extend to nearby countries such as Egypt, Lebanon, Palestine, Syria, and Yemen, the reduction in OFW numbers could reach about 556,883, with remittances falling by an estimated P231.777 billion.

The combined impact of higher inflation and lower remittances could weaken consumer purchasing power and slow economic growth. Balisacan said economic expansion in 2026 could decline by 0.20 percentage points under the first scenario and by 0.30 percentage points under the more severe scenario.

To mitigate these risks, Balisacan recommended several policy measures, including suspending the excise tax on fuel, implementing safety-net programs for vulnerable sectors, adopting staggered fuel price adjustments, expanding the use of low-cost bioethanol, and promoting energy conservation.

He also emphasized the need for long-term strategies to reduce the country’s reliance on imported fuel, including incentives for renewable energy development and streamlined permitting processes for potential nuclear power projects.

Earlier estimates from DEPDev showed that suspending excise taxes on fuel could lower diesel prices by about P6 per liter and gasoline prices by around P10 per liter.

On Tuesday, the House ways and means committee approved an unnumbered substitute bill that would allow the President to temporarily suspend or reduce excise taxes on fuel products as part of efforts to cushion consumers from rising oil prices.