by S BIRRUNTHA / pic by TMR FILE
MALAYSIA will be less exposed to the accelerated inflation amid a jump in commodity prices which has uneven effects.
According to a recent report by the Economist Intelligence Unit (EIU) titled “Asia Macro Outlook for Second Quarter of 2022 (2Q22)”, consumer spending will be more resilient in markets with stable inflation and real wage growth.
Sharing his views in the report, EIU regional director (Asia) Tom Rafferty said higher global commodity prices will feed into consumer prices across the region, albeit unevenly.
He added that the extent of pass-through will depend, among others, on the level of reliance on imported food and energy; the extent of price regulation, especially of fuels; and whether imported inflation is accentuated by exchange-rate weakness.
“Consumer spending will hold up better in markets where a rate of inflation consistent with historical trends is maintained and wages still grow in real terms.
“Malaysia’s fiscal earnings from its oil and gas exports have given its government the wherewithal to introduce measures to insulate households from cost-of-living pressures. It has also — controversially — restricted some food exports to preserve domestic supply.
“As a result, consumer prices are forecast to rise by only 3.1% in 2022, only a little higher than the pre-invasion (Russia-Ukraine conflict) forecast,” he said.
Apart from Malaysia, he also noted that Bangladesh, the Philippines and Vietnam are among the markets where the EIU projects inflation to be relatively stable and for inflation-adjusted wages to rise.
Commenting further, Rafferty said the economies in Asia set to experience the strongest inflation are among the poorest countries.
He highlighted that Mongolia, Pakistan and Sri Lanka are struggling with structurally high inflation before the Russia-Ukraine war and the additional rise in commodity prices. The countries are compounded by steep falls in the value of local currencies which are set to have a deep impact on local food and energy security.
“Extremely constrained fiscal circumstances provide little scope for their governments to soften price pressures.
“In Sri Lanka, we are forecasting consumer price inflation to average above 50% this year, as the country struggles with critical goods shortages born from the effects of the pandemic and policy mismanagement,” he said.
Nevertheless, Rafferty said some higher-income countries accustomed to low rates of inflation are also grappling with strong price rises.
He pointed out that inflation in Singapore is forecast to average 6% this year (versus 2.8% pre-Ukraine invasion), while in Thailand, it is expected to be 5.7% (compared to 1.9% previously).
He noted that import reliance and a lack of countervailing fiscal policies are the main factors underpinning the acceleration in prices.
“In Singapore, as well as advanced markets such as Australia and New Zealand, there are indications that price rises are becoming sticky with wages also moving up rapidly alongside.
“China will also have a low, stable inflation and real wage growth in 2022, but consumption will be affected by zero-Covid policies (we forecast that real private consumption will grow by only 0.4%),” he said.
Meanwhile, the report also highlighted that monetary policy tightening in Asia will lag behind that in the US, creating financial market and currency risks.
It said the Philippines and Thailand are among those vulnerable, given low policy rates and changes in their current-account positions.
According to EIU’s mid-year forecasts for the Asia Pacific, regional real GDP growth slows to 3.9% in 2022, from its end-2021 projection of 4.5%, chiefly owing to a change to the China outlook rather than Russia’s invasion of Ukraine.