DBS Group Research economists Radhika Rao and Chua Han Teng highlight that ASEAN-6 economies are experiencing asymmetric inflation outcomes despite the widespread energy shock. Indonesia and Malaysia are showing relatively subdued inflation, while Thailand, Vietnam and the Philippines are seeing higher readings. Rising WPI/PPI ratios point to pressure on pipelines, with policymakers expected to remain vigilant and some central banks, including Indonesia, the Philippines and Vietnam, likely to raise interest rates further.
Divergent inflation and prospects for tightening
“Although ASEAN-6 economies are facing the same energy shock, their inflation is asymmetric. On the mild end of the spectrum, inflation in Indonesia and Malaysia in April remained at 2.4% year-on-year and 1.9% year-on-year, respectively, while on the elevated side, inflation in Thailand, Vietnam and the Philippines rose to 2.9%, 5.5% and 7.2%. Price stability, however, comes with trade-offs.”
“Rising WPI/PPI signals pressure on the pipeline for the retail price index as businesses will be unable to absorb the full extent of increases in input costs as inventories decline. While the WPI/PPI is not an official policy target, policymakers will likely be paying attention to rising pipeline pressures that could ultimately translate into retail inflation and shape inflation expectations.”
“If geopolitical tensions persist, we believe the Philippines, Thailand and Vietnam are most vulnerable to price pressures, while inflation in Indonesia and Malaysia will also increase, but at a moderate pace.”
“In addition to inflation outcomes, monetary policy decisions and timing will also be influenced by the stability of the currency and financial markets. BI on Wednesday raised its benchmark rate by a more than expected 50 basis points to 5.25% following the April BSP move and Singapore’s MAS’s move to normalize currency parameters. We expect further rate increases in Indonesia and the Philippines, with Vietnam next in line to raise rates.”
(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor.)
