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Economics
Asian inflation was remarkably benign in 2021 but price pressures rose in the first half of 2022. Will ASEAN inflation take off as it did in the Americas and Europe or are different dynamics at work?
Inflation looms in Asia amid pick-up in pricing pressure
Asia, including Southeast Asia, must brace itself for a scenario where inflation surprises on the upside in 2022, and possibly beyond.
A confluence of factors is contributing to this pressure. These include, among others, spikes in food prices and other commodities following Russia’s invasion of Ukraine and the ongoing impact of supply chain disruption from COVID-19 – especially dramatically higher shipping prices, which typically take 12 months to pass through into consumer prices in Asia, according to research by the IMF.
It was a different story last year, when most Asian markets bucked the global trend of rapidly rising inflation, certainly compared with other emerging markets (EM). However, inflationary trends are materialising faster than many people thought they might.
“The rise in inflation across ASEAN and much of Asia has been above what we were expecting,” said Yan Carrière-Swallow, Senior Economist,Asia and Pacific Department at the IMF, at the ۶Ƶ OneASEAN Conference in June 2022.
“We are worried about food prices rising faster in Asia than they did last year, but we aren’t yet alarmed by what has materialized,” he added.
While assumptions underpinning many forecasts show the factors driving inflation are likely to fade, this has been proven wrong elsewhere. “Central banks need to err on the side of hiking, even if the case [for this] isn’t airtight,” explained Carrière-Swallow. “We are advising tightening in most Asian countries in 2022.”
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