The Latest on Southeast Asia: June 23, 2022

Just as countries around the world have begun shifting their focus from Covid-19 to post-pandemic recovery, global inflation accelerated by Russia’s invasion of Ukraine and supply chain disruptions have placed economic growth plans in jeopardy. The United Nations finds that prices are now 75 percent higher than pre-pandemic levels, and the World Bank forecasted that food prices will rise by 20 percent before the end of the year. The rise in prices is palpable in Southeast Asia, where the average inflation rate has increased by 3.8 percent from January 2021 to April 2022.

Indonesia and Malaysia have used protectionist policies to blunt the damage caused by rising food and energy costs. The inflation rate in Indonesia has so far remained below Bank Indonesia’s target of 2 to 4 percent. In April, the government prohibited the export of palm oil, widely used for cooking purposes, to ease prices for domestic consumers. But that only shifted the inflation burden abroad. Indonesia supplies 60 percent of the world’s palm oil and the export ban caused the price of edible oils to double in global markets. Indonesia has also provided subsidies for staples such as corn and soybeans.

Malaysia currently has the second lowest inflation rate in the region, at 2.3 percent. Food prices are rising faster, at 4 percent year-over-year. The government in Kuala Lumpur plans to distribute $395 million to low-income households, and Prime Minister Ismail Sabri Yaakob is considering expanding subsidies for cooking oil this year and making fighting inflation a key part of the 2023 budget. Malaysia’s recent ban on live chicken exports to Singapore, which imports 90 percent of its food from abroad and 34 percent of its chicken supply from Malaysia, was immediately felt in the city-state.

Given its reliance on imported goods, Singapore is reeling from the impacts of increased food and fuel costs. Food prices have increased by 4 percent from June 2021 and that rate could double to 8 percent by the end of this year. Its current rate stands at 5.4 percent, 3 percent higher than last year. In response, the government is looking to diversify import sources and subsidize food costs. It recently released a $1.5 billion stimulus package to support businesses and households struggling with inflation.

Vietnam’s capacity for domestic food production has helped it keep inflation and prices relatively low. HSBC has lowered its inflation forecast for Vietnam this year from 3.7 to 3.5 percent, which is below Hanoi’s 4 percent target.  Even so, the government is taking action to remain vigilant in the face of global inflation, especially with rising transportation costs.

The Philippines’ inflation rate, 5.4 percent, is the highest in over three years and has already breached the 2 to 4 percent inflation target set by the country’s central bank. Inflation is expected to remain above 5 percent into 2023 as the economy continues to reopen and challenges in the supply chain remain. The soon-to-be inaugurated president, Ferdinand “Bongbong” Marcos, has yet to reveal a detailed economic plan, but his decision to simultaneously serve as secretary of agriculture suggests that he will prioritize addressing rising food prices and insecurity.

Even worse off than the Philippines, Thailand’s inflation rate of 7.1 percent is the highest it has been in 14 years. Prime Minister Prayuth Chan-ocha plans to collect $722 million from a profit-sharing system with oil refiners to continue to fund a fuel subsidy program in the upcoming months.

Inflation has impacted every country in Southeast Asia, even as overall post-pandemic economic growth rates remain high. Global developments, including the U.S. Federal Reserve’s decision to raise U.S. interest rates to combat inflation, will complicate the region’s recovery in uncertain ways. But it is clear that Southeast Asia, like the rest of the globe, will be grappling with rising inflation for some time to come.