Headline inflation numbers are bottoming out across the ASEAN-5
economies and twelve-month inflation rates are likely to accelerate
noticeably in coming months. In this context we review potential
inflation shocks from commodity prices and administered price
adjustments given higher US dollar oil prices and weather effects. Over
the weekend, the Philippines announced the withdrawal of a fuel price
cap put in place following recent storms - implying upside to fuel
prices - while a decision on food price controls is pending. On the
cards for 2010 are subsidy reforms in Malaysia and Indonesia.
More important for financial markets is that monetary policy makers will
be focusing on the recovery in economic activity when they make their
decisions on the removal of monetary accommodation. And here we think
more evidence of durable economic recovery will be necessary before any
tentative tightening measures are undertaken; even if policy makers are
monitoring the impact of commodity prices on inflation expectations. We
remain of the view that no monetary tightening will take place in ASEAN
prior to Q2 2010.
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