FOOD prices could add to inflation pressures as a global fertilizer shock threatens to disrupt agricultural supply in the coming months, an HSBC economist said on Tuesday.
“I think it’s this second wave of inflation that the Philippines would need to really worry about,” HSBC senior economist Aris Dacanay told reporters in a briefing.
Surging energy prices drove inflation to 4.1 percent in March, breaching the 2.0- to 4.0-percent target, and Dacanay warned that the rate could skyrocket if fertilizer supplies are severely disrupted due to the US-Israel war on Iran.
“We do forecast that if, let’s say, the conflict in the Middle East persists up until end-June to early-July... inflation will peak in the fourth quarter... at 8.1 percent,” he said.
HSBC estimates full-year inflation could average around 6.3 percent under an adverse scenario, with price pressures intensifying toward the latter part of the year.
The expected spike in inflation, Dacanay said, is tied to disruptions in fertilizer supplies.
He noted that about a third of globally traded fertilizer passes through the Strait of Hormuz, making the commodity highly sensitive to disruptions.
Higher fertilizer costs are expected to reduce crop yields, triggering a delayed but significant increase in food prices.
The Department of Agriculture last week lowered its 2026 production forecast for unmilled rice to 19.87 million metric tons from 20.28 million MT, citing soaring fertilizer and fuel costs that will be aggravated by an El Niño.
“There’s usually a three to six month lag from when fertilizer prices shoot up,” Dacanay said, adding that the impact could begin to surface by the third quarter and peak toward yearend.
Unlike the oil shock, which is largely concentrated on transport and fuel-intensive industries, the fertilizer-driven impact is expected to have a broader and more persistent effect on consumers.
The Philippines, already vulnerable to oil price spikes, is also exposed to food inflation due to its reliance on imports and the high share of food in household spending.
Dacanay said the country was one of the largest net importers of food in Southeast Asia relative to the size of its economy.
Food inflation is expected to reach at least 8.0 percent under the adverse scenario, significantly affecting household budgets, particularly among low- and middle-income groups.
Dacanay said that policy responses would play a crucial role in mitigating inflationary pressures, particularly in the food sector.
As rice prices are a key driver of inflation, he said that a reduction to P40 per kilo could lower headline inflation by as much as 1.5 percentage points.
Ensuring policy stability in rice imports, adjusting tariffs, and addressing inefficiencies in the supply chain could help ease price pressures, he added.
Dacanay also said that the Bangko Sentral ng Pilipinas (BSP) could be forced to tighten monetary policy further even as the economy shows signs of slowing, raising the risk of stagflation.
“The BSP has a very difficult job,” he said, as policymakers are confronted with rising inflation pressures alongside weak investment, softening labor market conditions and subdued growth prospects.
Under an adverse scenario in which external supply disruptions persist through midyear, HSBC estimates that the BSP could raise the policy rate to as high as 6.0 percent to contain inflation.
