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the fed would be hard - pressed to hike rates by any significant measure ( as in june this year ) if oil prices continue to drop because inflation in the us will be soft. in addition, low oil prices increase the risk of deflation in the eu and japan, raising the likelihood that more easing measures would be put in place. in other words, ladies and gentlemen, whereas markets used to have the confidence in the trend of monetary policies, this new uncertainty from oil price movements is now seen to heighten volatility in financial markets by unsettling investor risk appetite and unseating inflation expectations. further, a continued decline in oil price could also change the balance of global growth prospects. there will be winners and losers if low oil prices persist. while the decline in oil is a dampener to inflation and could raise purchasing power for oil importers, it could also result in a loss of revenues for oil producers and lead to weak aggregate demand. with overall global growth still fragile, the significant drop and the weak prospects in oil prices have gotten more analysts discussing the risk of deflation in recent weeks. the philippines in focus : how do we see all these impacting the philippines? for us, low oil prices represent disinflation pressures. fuel and fuel - related items account for nearly 9 pct of our cpi basket. we have also seen transport fares being adjusted downward. in addition, the fall in oil prices could benefit us through an increase in household real income as well as the lower cost of production. i have been asked whether we are worried about deflation ( due to the substantial decline in oil prices ). well, deflation effects in the aes can spillover to our economy through lower trade. however, trade as a percentage of gdp is still relatively lower than those of our peers in the region. 1 so the risk here is probably only of a relatively small magnitude. as for deflation materializing in the philippines, the risk is not significant. for one, our demand conditions are firm. services and industry remain strong. and on the demand side, consumption is seen remaining robust. we heard sec. balisacan say yesterday that “ the worst is over on underspending ” and that the government is committed to ramping up spending. there are other factors that lead us to say that deflation is remote – or that note : trade value ( exports plus imports ) relative to gdp is low for the philippines as compared to most of our regional peers.