Inflation high but stabilising (mostly), turmoil in Indonesia

May’s inflation data across Asia were mixed but broadly encouraging. While inflation remains well above pre-war levels in most economies, it generally stabilised last month. We expect most central banks in the region to continue raising interest rates gradually over the coming months. However, given the uncertainty surrounding developments in the Middle East and the growing risk that an El Niño event pushes up food prices, the risks to inflation and interest rates remain skewed to the upside.

Indonesia’s financial markets have fallen sharply this week, with both the currency and stock market among the worst performers in the region so far this year. We will be holding an online briefing on Tuesday to discuss the outlook for the economy.