Mon, May 11, 2026 page7

• Why the Philippines inflation shock is so worrying

  • By Daniel Moss / Bloomberg Opinion
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  A much bigger inflation shock than imagined is coming for Southeast Asia — if a country that had shown promise is anything to go by. The Philippines, more often the focus of maritime rivalry between the US and China than developing economic trends, is in the grip of a sudden and brutal price surge brought on by the Iran war.

  Policymakers and businesses across Asia need to prepare for more tough decisions, as if their deliberations since the conflict began have not been challenging enough. They would hope that the travails of the Philippines are an anomaly, the result of soaring transport costs in an archipelago that imports almost all its oil from the Middle East and suffers from decades of underinvestment in mass transit. They would be wise to consider whether, instead, it is just a taste of things to come. It could be better to plan for dire outcomes and watch Manila’s response very carefully. Only questions of degree separate the nation from its neighbors. That might provide some comfort for a while.

  The inflation spike is alarming. Consumer prices shot up more than 7 percent in April from a year earlier, figures released this week show. That was not only the fastest pace since the early post-COVID 19 surge, it also exceeded the central bank’s forecast and was far beyond any private-sector estimate. Economists now worry that inflation could approach 10 percent in the next couple of months. In February, it was just 2.4 percent and well inside the target range.

  It is no surprise that prices are heading north; some acceleration was anticipated. It was already clear that countries heavily reliant on imported energy were in the firing line. What was not appreciated was the extent of the surge.

  Inflation is picking up almost everywhere since the war broke out in Iran on Feb. 28, interrupting supplies of oil and gas and sending their cost skyward. Central banks have projected that prices would climb before settling back to more comfortable levels. However, numbers starting with “7” were not anticipated; the Philippines is far ahead. While the sudden shock might not be exactly replicated elsewhere, it is worth considering whether expectations are too conservative.

  The relatively moderate forecasts in most countries are effectively a bet that hostilities would end and the vital Strait of Hormuz, through which a large share of the world’s oil flows, would reopen before too long. Australia and Singapore have tightened policy, though that needs some context: the Reserve Bank of Australia began raising rates in February, before the war began, as the economy picked up momentum; it has continued hiking, including a quarter-point increase on Tuesday. Singapore was always likely to wind back accommodation. The war and the higher inflation expectations it brought made those steps easier.

  For the central bank of the Philippines, the sudden jump requires more than just a fight-inflation-first strategy. On the present course, a “fight inflation only” approach would be more appropriate. Yes, officials should worry about a slowing economy and the further squeeze that an aggressive response would produce. Policymakers cannot rely on a gradual response to price increases that have tripled in two months. It is time to act forcefully before significantly faster inflation becomes entrenched in the everyday decisions of companies and consumers.

  Like others, the bank began trying to look past the initial spike in oil prices before taking any meaningful action. It was forced to abandon that approach and raise its main rate by a quarter point in April while signaling further steps ahead. The question now is whether more of the same would still be enough. The next scheduled meeting is not until the middle of next month. By then, inflation could be dangerously higher. Another modest increase would leave the Philippines badly behind the curve.

  Two alternatives present themselves; neither is cost-free. Officials could raise rates in June by half a percentage point, a larger move than almost any other country. Alternatively, the bank could announce a step between regularly scheduled meetings. Generally, authorities try to avoid such moves outside crises on the scale of the 2008 financial crisis or the early days of the pandemic. However, such action would signal resolve to both the country’s 117 million people and to international investors nervous about a potential flashpoint in emerging markets. The Philippine currency, the peso, is the worst-performing emerging-market currency against the dollar since missiles in the Iran war began flying.

  This is not an ordinary time in the Philippines — or anywhere else. While the nation’s predicament might be particularly acute, it is a timely case study in how quickly things can unravel when a couple of forecasts are missed.

  Manila struggled to get credit for posting some of Southeast Asia’s strongest growth in the decade before COVID-19 and for its robust recovery from the pandemic. It is time to pay attention.

  Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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