Consumer prices are likely to increase substantially as food and fuel prices rise
Russia’s invasion has exacerbated global inflationary pressures, as Russia, Belarus, and Ukraine produce many commodities that are critical to global supply chains. As a major importer of fuel and food, Southeast Asia will feel a substantial impact from these pressures over the coming months. Firms should evaluate how rising prices will affect demand for their products in the region. In high-risk markets such as the Philippines, firms may want to consider altering their product offerings and adjusting their pass-through strategy accordingly.
The war in Ukraine will impact inflation dynamics in Southeast Asia over the coming months. The effect on the Philippines will be mainly driven by rising oil and wheat prices, which will exacerbate inflationary pressures created by Typhoon Odette. Rising energy prices will drive up inflation in Vietnam, as transportation and energy currently make up 9.7% and 3.6%, respectively, of the consumer goods basket. As Asia’s largest wheat importer, Indonesia will experience a spike in the price of wheat among other commodities, intensifying inflationary pressures. Inflation in Malaysia and Thailand will be driven predominantly by rising food and oil prices as well.
A likely protracted stalemate between Russia and Ukraine will prolong inflationary pressures on Southeast Asian countries until H2 2022 at least. Some governments are trying to reduce the inflationary impact by providing subsidies and implementing tax cuts. For example, the Philippines has allocated US$ 60 million for fuel subsidies, while Vietnam is planning to cut its environmental tax on fuel. Nonetheless, even with such measures, Southeast Asian markets will be unable to escape rising inflation over the coming months, due to the high dependence on global markets for fuel and food production.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.