Asia week ahead: Inflation has peaked

Aside from the notable exception of India, consumer price inflation in Asia appears to have peaked. The June inflation data from Indonesia and Korea this week attested to this view and we expect inflation releases next week from China, Taiwan, the Philippines, and Thailand to reinforce this message further.

Renewed Covid-19 restrictions across Asia have weakened spending and as a result, price pressures have softened. The retail sales figures for May from Australia and Singapore will offer the markets a glimpse into the hit to demand as both countries reimposed movement restrictions in May.

The reversal of the latest inflation spikes will be a significant relief to central banks, which still need to provide monetary policy support amid the ongoing pandemic.

The Reserve Bank of Australia and the Bank Negara Malaysia are set to review their current policy settings next week. Although both central banks will leave policies unchanged, there will be some interest in their forward guidance, especially from the RBA whose last policy minutes noted a likely decision on future bond purchases and the target bond maturity (see our latest note on this, “Australia: Main policy decisions pushed out until July RBA meeting”).