Higher Shipping Costs May Lift Asia’s Low Inflation
Inflation is rising in a number of advanced and emerging economies.
Relative to other regions, Asia has managed to keep levels relatively low.
However, the persistent impact of high shipping costs could change this.
As the world economy recovers from the pandemic, inflation is mounting in advanced and emerging economies. Pent-up demand fueled by stimulus and pandemic disruptions is helping accelerate inflation, spread around the world through global factors like higher food and energy prices, and soaring shipping costs.
The chart of the week shows how Asia’s inflation has been more moderate versus other regions, affording central banks room to keep interest rates low and support economic recovery. However, Asia’s tepid price gains may see greater momentum next year. The outlook remains uncertain, and central banks should be ready to tighten policy if inflation pressures and expectations mount.
Several factors explain Asia’s lower inflation. Among Asia’s emerging economies, a delayed recovery has kept core inflation—which strips out volatile food and energy costs—running at half the rate of peers in other regions. And the cost of food—which makes up about one third of the consumer price index baskets—grew 1.6 percent over the past year, versus 9.1 percent in other regions . This reflects unique factors such as a solid harvest in India, a hog population rebound from a recent swine flu epidemic in China, and contained increases in rice prices. By contrast, lower inflation in Asia’s advanced economies reflects a different set of factors. The region has enjoyed more muted energy inflation than Europe and the United States.
