DBS Group Research economists Radhika Rao and Chua Han Teng report that the ASEAN-6 economies are experiencing divergent inflation outcomes despite being affected by a common energy shock. In April, Indonesia and Malaysia recorded relatively contained inflation rates at 2.4% year-on-year and 1.9% year-on-year, respectively. In contrast, Thailand, Vietnam, and the Philippines saw higher inflation readings of 2.9%, 5.5%, and 7.2% year-on-year, respectively [1].
The economists highlight that rising Wholesale Price Index (WPI) and Producer Price Index (PPI) figures indicate pipeline pressures, suggesting that businesses may not be able to fully absorb increased input costs as inventories are depleted. This could eventually translate into higher retail inflation and influence inflation expectations, even though WPI/PPI are not official policy targets [1].
The report notes that if geopolitical tensions persist, the Philippines, Thailand, and Vietnam are likely to be most exposed to further price pressures, while Indonesia and Malaysia may also experience rising inflation, but at a more moderate pace [1]. In addition to inflation, currency and financial market stability are expected to influence the timing and magnitude of monetary policy decisions. Bank Indonesia (BI) recently raised its benchmark rate by a larger-than-expected 50 basis points to 5.25% on Wednesday, following the Bangko Sentral ng Pilipinas (BSP)'s rate hike in April and the Monetary Authority of Singapore (MAS)'s move to normalize its FX parameters [1].
DBS expects further rate increases from Indonesia and the Philippines, with Vietnam anticipated to be the next in line to raise rates [1].
CONCLUSION
ASEAN-6 economies are facing divergent inflation trends, with some countries experiencing significant price pressures. Policymakers are expected to remain vigilant, and further interest rate hikes are likely in Indonesia, the Philippines, and Vietnam. Market participants should monitor inflation data and central bank actions closely as pipeline pressures and geopolitical risks persist.