By Fil C. Sionil
In recent days, the peso has been making history, struggling to stay afloat against the mighty greenback as it hits highs of ₱62 amid intensifying geopolitical risks that continue to drive up international crude oil prices.
The prevailing trend in the peso-dollar exchange rate has naturally sparked renewed inflation concerns.
Yes, Virginia, the weakness of our local currency has collateral bearings on other macroeconomic variables. Because we are heavily import-dependent, a weaker peso drives up inflation, inflates the country’s outstanding foreign liabilities due to exchange rate differentials, and more importantly diminishes our purchasing power.
In other words: it directly impacts our “a-poor-dability.” A weaker peso immediately squeezes our wallet. With these recent developments, I cannot help but wonder: what is the real purchasing value of a single peso today?
Remember, Virginia, the Philippine Statistics Authority (PSA) admitted just last month that the purchasing power of ₱1 has eroded to equivalent to only ₱0.75.
Tracing its movement year-to-date, the peso depreciated by ₱3.775 against the United States (US) dollar, a slide of roughly 6.42 percent based on the ₱58.79 closing rate recorded on the last trading day of December 2025 versus last Wednesday’s ₱62.565 finish.
Using the standard baseline, where every ₱1 depreciation hits inflation by 0.04 percent, the direct impact on overall inflation seems modest on paper, coming in at roughly 0.15 percent.
Now, you may wonder: if the mathematical impact of a weakening peso on inflation seems trifling, why is the economic pain we are feeling so intense?
First and foremost, the peso’s depreciation is externally induced by the months-long geopolitical conflict between the US and Iran, which continues to trigger severe global supply disruptions.
Furthermore, the structural weakness of our local currency is deeply intertwined with the country’s current account (CA) position. That’s right, Virginia: elevated global oil prices inflate our import bills, widening both our trade deficit and overall current account shortfall.
As Bangko Sentral ng Pilipinas Governor Eli M. Remolona pointed out: “We have been running a current account deficit for several years. Our current account balance summarizes our financial relationship with the rest of the world. It takes account of the various inflows and outflows into and out of the Philippines.”
Ergo, when a country runs a persistent current account deficit while offering comparatively lower yields, capital outflows inevitably tick upward. This surges local demand for dollars, forcing the peso to depreciate further.
The ongoing geopolitical strain doesn’t help either, as it threatens our net factor income, the very channel through which crucial dollar remittances from overseas Filipino workers (OFWs) flow.
Having relatives who are OFWs, I beg to differ with the common assumption that the weaker currency automatically favors beneficiaries because they receive more pesos per dollar. This is a misconception; the relief is temporary, if not outright imaginary, because any extra peso increment is quickly swallowed up by domestic inflation.
Compounding matters, climate change risks directly threaten our food security. The recent massive flooding in Central Luzon, the rice basket of the Philippines, exacerbates an already delicate situation.
All things considered, the hanging question remains: with the continuous slide of the peso, will the BSP take a preemptive stance and call for an off-cycle monetary policy meeting?
The answer hinges heavily on the severity of currency pressures and the PSA’s August inflation report scheduled for release today.
Talk back to me at sionil731@gmail.com
