Asia week ahead: Korea rate decision, inflation data from China and Taiwan

South Korea’s economy benefits from robust chip exports and fiscal support
Japanese business sentiment remains solid, supporting April BoJ hike
Oil drives South Korean inflation higher, but government curbs keep it contained
Slower Tokyo inflation unlikely to deter Bank of Japan’s April hike
South Korean data points to firm first-quarter growth, but Iran risks abound
Chinese PMI rebounds as Iran impacts start trickling through

The Bank of Korea is expected to leave policy rates unchanged on Friday. Strong chip demand has helped offset the effects of commodity supply constraints. Oil prices are driving inflation higher, but government measures are keeping it contained. Against this backdrop, the BoK is likely to take a wait-and-see approach for now to analyse the impact of Middle East shocks. We expect price pressures to increase and financial imbalances to worsen in the coming months. This could prompt the BoK to hike rates in the third quarter.

Taiwan’s March inflation data is out on Wednesday. We expect inflation to moderate slightly to 1.6% year-on-year, lower than February’s Lunar New Year holiday-boosted 1.75% level. The data is likely to show early signs of price pressures emerging in the energy sector. With inflation risks rising and growth consistently beating forecasts, the odds are shifting toward the central bank’s next move being a hike rather than a cut. Unless inflation significantly overshoots expectations in the coming months, policymakers will likely stay on hold when they next meet in June.

China releases its March inflation data on Friday. We expect that the positive price momentum from the last couple of months carried over into March, especially with the surge in energy prices amid the Iran War. The price subcomponents of the purchasing managers’ index data, which reached their highest monthly levels since 2022, suggest inflation will heat up in March. We expect CPI inflation to remain elevated at 1.2% YoY and PPI inflation to return to positive territory for the first time since 2022, at 0.6%. Markets will also monitor local gasoline price moves, as the bi-weekly adjustment is expected on 7 April. Prices have climbed since the outbreak of the war, but at a much slower pace than overall crude oil prices.