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Inflation not yet a worry in Asia, except for India and the Philippines: report

Janice Heng
Published Wed, Mar 31, 2021 · 06:55 PM

THOUGH concern over inflation has been rising in Asia, such worries are premature for most economies - with the exception of India and the Philippines, according to an analysis by Moody's Analytics.

For most of Asia, inflation is expected to pick up gradually over the course of 2021, as oil prices rise and economies reopen, Moody's Analytics senior APAC economist Katrina Ell wrote in Macro Roundup: Is Inflation the Next Worry in Asia?

Worries over inflation are premature, as demand-side pressures are expected to stay subdued into the second half of the year, she said.

But India and the Philippines are exceptions: "In these economies, inflation is above comfort levels, adding to the list of challenges for policymakers."

In the Philippines, elevated inflation, a large output gap, a resurgence of Covid-19 infections, and limited vaccine availability are all reasons for concern, she noted.

In March, despite recent above-target inflation - 4.7 per cent in February, compared with the target range of 2 to 4 per cent - the country's central bank kept monetary settings accommodative with the policy rate staying at the record low of 2 per cent.

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Moody's Analytics expects the central bank to stay on hold this year, with further policy support coming from more targeted fiscal measures, amid a slower-than-expected recovery. Its 6.3 per cent forecast for the Philippines' full-year gross domestic product (GDP) growth "has significant downside risks at this stage", noted Ms Ell, adding that Moody's Analytics will review this in its early-April forecast round.

Inflation is also "worrisome" in India, where the consumer price index (CPI) rose 5 per cent in February, with food prices being a key driver of inflation.

Higher fuel prices will keep upward pressure on headline CPI, and prevent the Reserve Bank of India from offering further rate cuts, said Ms Ell.

The report also addressed the question of China, where producer prices have been accelerating. "But causality shouldn't be assumed," said Ms Ell, adding: "Rising producer prices don't automatically indicate a pick-up in consumer prices."

While the headline CPI may rise in the coming months, Moody's Analytics sees it as unlikely to touch the government's 3 per cent inflation target.


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