Global Economic Outlook – September 2022 Inflation rising to uncomfortable levels Policy tightening set to become As elsewhere, inflation is picking up across the region. But a drag on growth the rates are generally lower than in much of the rest of In the absence of widespread domestic pressures, the the world. Movements in global energy and food prices are pace of interest rate rises has generally been slower than flowing through and are being exacerbated by exchange in other countries (albeit starting from a higher base in rate depreciations. But relatively small amounts of fiscal Indonesia and the Philippines). This outcome, coupled with stimulus through the pandemic and the lingering impact of a flight to safe assets (particularly the USD), has resulted in restrictions means that domestic demand has not moved many currencies depreciating sharply this year; the Korean substantially beyond supply, resulting in limited domestic won has lost 19% and the Thai baht 13%. But in line with wage and price pressures. Overall, inflation rates are the positive shock to their terms of trade, commodity expected to peak at relatively low levels across the region. exporters have generally seen smaller movements, with the The surge in commodity prices has also been a benefit Indonesian rupiah depreciating by just 5% since January. to some Asian countries. In particular, Indonesia and Fiscal tightening will add a further headwind to growth over Malaysia have seen significant rallies in their terms of the medium term, with the elevated levels of government trade this year as the price of crude and palm oil has spending through the pandemic now being unwound. In skyrocketed. Those rallies have subsided in recent months, fact, in some countries such as Indonesia and Singapore, but strong commodity prices are clearly still benefiting attention has started to shift towards fiscal consolidation, commodity exports. with the announcement of tax increases as initial signs of economic recovery emerge. Chart 18: Headline CPI inflation, Asia 10% Ben Udy Economist & Senior Manager, KPMG in Australia 8% Dr. Sarah Hunter 6% Senior Economist & Partner, KPMG in Australia 4% 2% Headline inflation, % 0% -2% -4% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Singapore South Korea Thailand Malaysia Indonesia Philippines Source: KPMG Economics, Macrobond. While the recent dip in oil prices may take some of the sting out of price hikes for consumers, we doubt that inflation has reached its peak for most of the region. We have therefore lifted our forecasts for inflation in 2022 and 2023 throughout the region. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 19