With Russia’s invasion of Ukraine, US interest-rate rises and spiralling energy prices, Asia is facing an inflation shock which will dent growth. Asian central banks will spend much of this year between a rock and a hard place, as they find ways to balance rising inflation by normalizing monetary policies, even if it’s at the expense of growth.
Things are not too bleak yet. On average for the region, core inflation is roughly on par with levels seen before the pandemic wreaked havoc on economies around the world.
But the consensus is that inflation will go up sharply in the coming months, especially in India and Japan.
In India, for instance, the central bank has a surprisingly dovish forecast of 4.5% for inflation, but numerous economists are predicting it could be as high as 5.3%. The concern is that delays in controlling inflation could further hit demand in an environment of low consumer confidence and poor employment opportunities.
This raises critical questions in Asia. What should central banks do – and how should firms and investors position themselves?
The consensus is that inflation will go up sharply in the coming months, especially in India and Japan.