PART 1_V3

R E S E T 2 0 2 2

PA R T 1 : T H E E CONOM Y

These are extreme results which are placing severe pressure on economic systems in these regions. Turning to Asia Pacific, inflationary pressures have lifted significantly in the past few months across most of the region. Initially this was most evident in Singapore, Australia, India and Japan, though recently data has also shown a strong inflation surge in the Philippines and South, all experiencing an increase of around 150bps or more so far this year. Elsewhere, the rises have been more muted, with inflation rising by less than 60 bps in Malaysia and Hong Kong. Ostensibly the main drivers of inflation across the region are food, transport and utility pricing as the world competes for scarce products.

However, this presents both opportunities and challenges. Restrictions on food-grade oils out of Russia and Ukraine has benefited Malaysia and Indonesia via demand for palm oil, while Malaysia and Australia have benefitted from higher commodity pricing. Furthermore, the continued demand for semi-conductors and other electronic equipment has helped support export demand from North Asia. Indeed, it is important to note the significant difference in consumer price inflation and producer price inflation, at least at the regional level. Average CPI increase across the region stands at 2.4% y-o-y as at Q1 2022 compared to 9.0% y-o-y for PPI. Although these measures are not a like-for-like comparison, it clearly shows that producers are facing soaring input prices.

The continued demand for semi- conductors and other electronic equipment has helped support export demand from North Asia.

FIGURE 2: ASIA PACIFIC CPI VS PPI (% Y-O-Y)

12%

10%

8%

6%

4%

2%

0%

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

-2%

-4%

CPI

PPI

Source: Moody’s, Cushman & Wakefield -6%

Taking an objective view, inflation in Asia Pacific has risen quickly this year and is likely to rise further over the coming months. New Zealand is currently at a 30 year high, Australia is at a 20-yr high and Singapore a 10-yr high, all represent significant stress. However, in contrast, several markets remain below pre-COVID (2018-19) averages including Mainland China, Hong Kong China and Vietnam. So, while price pressures are increasing, they are far from universal across the region.

Ultimately, it should be recognised that inflation in Asia Pacific, although increasing, is somewhat more benign than seen elsewhere. Although there is a lot of water still to navigate, long term inflation expectations (as seen in the Australian 10-yr inflation break even rate) remain within target bands. As such current forecasts expect the worst of these inflationary pressure are acting at present through to early Q3 for the majority of markets, before stabilising over the remainder of the year and then starting to normalise from 2023.

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