(Sept 23): In the worldwide quest to conquer the inflation peak, Southeast Asian central bankers appear to be better off than most, though still far from declaring victory.
Three of the region’s six-biggest economies have registered tentative deceleration in their latest consumer-price growth data. Singapore’s all-items CPI surged to 7.5% in August from a year earlier, the highest in more than 14 years, and Malaysia’s jumped by 4.7%, the fastest pace in more than five years, according to reports released on Friday.
Indonesia and the Philippines are staring down a further bubbling in prices, taking little solace in the most recent data. Subsidies are being eased in Indonesia, while the Philippines is facing persistent food shortages.
“The peak in headline inflation is just a first step in the right direction,” said Tamara Henderson, chief Asean economist at Bloomberg Economics. “The more critical issues for central bank rate decisions are core inflation, and how long headline inflation remains above target. Headline inflation may have peaked but if it remains well above target, that will probably loosen inflation expectations and lift wage demands.”
Contained inflation expectations — especially compared to US data that remains red-hot and about four times above the Federal Reserve’s goal — had kept some Southeast Asian central bankers more sanguine about raising interest rates. Indonesia and Thailand only started hiking last month, while Vietnam’s central bankers finally joined the rate-hike camp this week, in a surprise 100-basis-point move.
On Thursday, Bank Indonesia delivered a bigger-than-expected hike of 50 basis points. Central bankers in the Philippines also increased their benchmark rate by a half-point, matching the Bloomberg survey median. Both cited inflation that’s likely to stay above their 2%-4% target bands going into 2023.
Thailand is expected to announce its rate decision on Sept 28.
More risks to watch for Southeast Asian central banks, as Henderson notes:
- Indonesia’s recent increase of domestic fuel prices by more than 30% due to fiscal constraints means inflation is set to rise much further above the target in the months ahead;
- There’s a “strong chance” that Malaysia, the Philippines and Vietnam will also need to peel back subsidies — which would delay the peak in inflation;
- Singapore and Thailand — where prices are more flexible — will likely peak sooner, within the next few months, if commodity prices slide further. But unless domestic prices actually fall, or wages rise to compensate, then households won’t have more spending power.