The inflation and interest rate picture in Asia-Pacific remains mixed. In many economies, modest core inflation momentum suggests limited or no further monetary policy tightening this year.
But in some economies, recent hefty increases in core prices are forcing central banks to consider more rate hikes. Australia, New Zealand, and the Philippines belong in this group, said S&P Asia-Pacofoc Chief Economist Louis Kuijs.
This is according to a report published, titled, “Asia-Pacific: It’s A Mixed Bag For Inflation And Rate Implications.”.
“Amid lower energy and commodity price pressure, the recent low pace of sequential core inflation in most Asia-Pacific economies implies central banks won’t have to raise policy rates much this year,” said Kuijs.
However, we should be cautious about expectations of a steady decline in U.S. inflation. The labor market there is strong; unemployment remains low, and wages are rising briskly.
“Indeed, we expect the U.S. Federal Reserve to raise the policy rate above 5% this year. We also see the market expectations of rates falling meaningfully later in 2023 as unrealistic,” Mr. Kuijs said.
The decline in sequential U.S. core price increases is nonetheless welcome. If it continues, year-on-year core inflation will retreat.
In China, the economist expects the increase in consumer inflation this year to remain moderate and doesn’t think the People’s Bank of China will raise its policy rate this year.
For Japan, however, some small monetary policy tightening is possible later this year.
The central banks of Korea, Indonesia, and Taiwan have broadly finished raising rates.
Conversely, in Australia, New Zealand, and the Philippines elevated core inflation in recent months is fueling expectations of further policy rate increases.
“The coming six months are likely going to show significant differentiation in central bank policy moves, depending on the domestic inflation trajectory, with some countries raising rates as others stay pat,” Kuijs said