Diesel at P162.50/liter, double-digit inflation seen in May under ‘most severe scenario’ –DEPDev

The Department of Economy, Planning and Development (DEPDev) warned that the inflation rate could shoot up to double-digit levels with diesel prices seen rising by 176% under a “most severe scenario” if crude hits $200 per barrel amid the Middle East crisis.

Socioeconomic Planning Secretary Arsenio Balisacan discussed the DEPDev’s analysis on the economic impact of the US-Iran-Israel conflict during a Senate hearing on the proposed emergency powers to suspend fuel excise tax collection.

Balisacan’s presentation to the Senate was an update to the possible "severe scenario" he discussed with the House of Representatives two weeks ago. 

The latest DEPDev analysis outlines five scenarios. 

The fifth scenario was described as “most severe.”

Under Scenario 5, when crude hits $200 per barrel, the DEPDev estimated that domestic diesel prices could spike by 160.05% by April to P154.06 per liter, against a baseline estimate of P59.24 per liter.

By May, diesel prices could jump by 176.49% to P162.60 per liter compared to pre US-Israel-Iran conflict baseline estimates.

Gasoline, on the other hand, is expected to rise by as much as 133.17% to P135.48 per liter in April and 146.85% to P142.38 per liter in May under Scenario 5.

DEPDev’s estimates showed that inflation could accelerate to 11.4% to 14.3% in April under Scenario 5, averaging at 7.3% to 8.6% in 2026.

Even under the least severe scenario of $100 per barrel crude, inflation rate is still expected to breach the government’s comfortable ceiling of 2% to 4%, with the full-year average hitting 4% to 4.2%.

Under Scenario 5, assuming there would be a total ban on new deployment in the Middle East and a 25% repatriation of OFWs, the DEPDev is projecting a P167.45-billion reduction in remittances.

The country’s gross domestic product (GDP) could also suffer 1.47 percentage points to 1.95 percentage points reduction with the full-year economic growth clocking in at 3.5% to 4% —way below the government’s target of 5% to 6%.

The muted economic growth could push unemployment and poverty incidence higher, according to the DEPDev.

Under Scenario 5, the Socioeconomic Planning Department is expecting unemployment rate to hit 5.67% to 5.84% while poverty incidence hitting 12.39% to 12.55%, against a baseline estimate of 4.4% for unemployment rate and 11.9% for poverty rate. — BM, GMA Integrated News