ASEAN-6 inflation: Pipeline pressures and rate risks – DBS

DBS Group Research economists Radhika Rao and Chua Han Teng highlight that ASEAN-6 economies are experiencing asymmetric inflation outcomes despite a common energy shock. Indonesia and Malaysia show relatively contained inflation, while Thailand, Vietnam and Philippines face higher readings. Rising WPI/PPI point to pipeline pressures, with policymakers expected to stay alert and some central banks, including Indonesia, Philippines and Vietnam, likely to raise rates further.

Divergent inflation and tightening prospects

"While ASEAN-6 economies face the same energy shock, their inflation outcomes have been asymmetrical. On the benign end of the spectrum, inflation in Indonesia and Malaysia remained contained at 2.4% yoy and 1.9% yoy, respectively, in April, while on the elevated side, Thailand, Vietnam, and Philippines’ inflation jumped to 2.9%, 5.5%, and 7.2%. Price stability, however, comes with trade-offs."

"Rising WPI/PPI prints signal pipeline pressures for the retail price gauge, as businesses will be unable to absorb the full extent of an increase in input costs as inventories run down. Although WPI/PPI is not the official policy target, policymakers are likely to remain attentive to mounting pipeline pressures that could eventually feed into retail inflation and shape inflation expectations."

"If geopolitical tensions persist, we view Philippines, Thailand, and Vietnam to be most exposed to price pressures, whilst inflation in Indonesia and Malaysia will also increase but at a moderate pace."

"In addition to inflation outcomes, currency and financial market stability will also guide the decision and timing of monetary policy. BI increased its benchmark rate by a more-than-expected 50bps to 5.25% on Wednesday, following BSP’s move in April and Singapore MAS’ shift to normalising its FX parameters. We expect further rate increases from Indonesia and Philippines, with Vietnam next in line to raise rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)