Asia week ahead: What is inflation worth these days?

Korea, Taiwan, Thailand, and the Philippines, will report their inflation numbers for September. All should see inflation continuing to be subdued.

With the exception of India, inflation across the region has been low. And, whatever inflation there is, it’s mainly in the food component. The supply disruption due to pandemic in some countries and floods or droughts in others explain elevated food inflation. Meanwhile, the ongoing recession has kept demand-side price pressures muted. We expect weak demand to continue to outweigh supply shocks to keep inflation low for some time to come.

Low inflation may be an argument for more monetary policy accommodation to revive growth. However, not many Asian central banks have that easing space anymore, especially those with policy rates already close to zero. The Reserve Bank of Australia, which is going to review its monetary policy next week, falls in this category.

We expect no change to the RBA cash rate from the current 0.25%.

A surprisingly strong export surge in Korea in September supports our upbeat forecast for Taiwan’s exports too. The electronics-led recovery is getting traction in these countries, though not everywhere in the region. The Philippines reports its August trade next week too and has yet to jump on this electronics wave given that more than half of the Philippines’ exports are electronics.

Singapore’s retail sales for August will shed light on private consumption recovery. Strong rebound in sales over June and July has clawed back the entire dip experienced during the Covid-19 lockdown in the previous two months. We don’t think there was further headway in August.

On the contrary, some contraction is likely with the onset of the Hungry Ghost Festival in the middle of the month - the time when big-ticket purchases like cars are typically avoided.