Time to worry about deflation?

Emerging Asia has seen a sharp drop in inflationary pressures over the past few months. Taiwan, Singapore and Thailand are now experiencing deflation, while inflation is 1% y/y or below in Malaysia, Korea, and Vietnam. Only in Indonesia is inflation significantly above 5%, but even there inflation dropped back sharply last month. The main factor behind the drop in inflation is lower oil prices, which despite the recent rebound are still 40% lower than their levels of a year ago. Looking ahead, while inflation looks set to remain low, a sustained period of deflation is unlikely. Downward pressure on inflation from oil prices is likely to bottom out in February. What’s more, core inflation is still positive across the region, nominal wages are rising at a healthy rate and, if anything, growth looks set to accelerate in most economies.