The global oil crisis triggered by Middle East tensions has sparked inflationary alarms across Southeast Asia, with the poorest households among the most vulnerable, experts say.
"The conflict in the Gulf poses a big challenge to economies in Southeast Asia," said Frederic Neumann, chief Asia economist at HSBC banking group. "In particular, rising energy costs are likely to push up inflation across the region."
Poorer economies are especially hard-pressed in the current environment as they have fewer resources, both in terms of energy supplies and fiscal space, to address an energy price shock, Neumann said.
Jun Hao Ng, assistant economist at British think tank Oxford Economics, said inflation pressures in the Philippines are among the most intense, if not the worst, in the Association of Southeast Asian Nations.
On April 23, the Philippine central bank hiked its policy interest rate by 0.25 percentage points to 4.5 percent, citing continued increases in core inflation, which jumped to 4.1 percent in March from 2.4 percent in February. It made the Philippines the second ASEAN member, after Singapore, to tighten policy in response to the global energy shock.
Ng said inflation in the Philippines has been higher than that of its ASEAN peers "because it relies less on broad fuel subsidies and price caps".
Echoing Ng's view, Neumann said the Philippines, being a significant food importer, has fewer price controls and subsidies for energy costs.
Thailand and Vietnam also face significant price pressures, while Malaysia and Indonesia, where subsidies and price controls dampen inflation, may see indirect effects via nonsubsidized energy and food costs, he said.
Across ASEAN, inflation risks have been flagged by many countries. Vietnam's Finance Ministry said on April 23 that inflation could soar to 5.5 percent this year, higher than the government's target of 4.5 percent.
"In the last 10 years or so, inflation has stayed below 4 percent, so an increase of above 5 percent starts to send alarm bells in Vietnam," said Raymond Mallon, an independent economic adviser based in Hanoi.
Noting that the agricultural part of the consumer price index is about 30 percent in Vietnam, Mallon said higher agricultural prices resulting from fertilizer shortages will have a bigger impact than a direct fuel price increase.
However, given the government's push for economic growth and the fiscal space it has to minimize the effect, he said the situation in Vietnam will be better than Laos, where inflation is close to 10 percent.
For example, Laos has relied on Thailand for most of its fuel imports, leaving it particularly vulnerable to disruptions in fuel supplies.
Greatest impact
Mallon said the poorest people in society will tend to feel the greatest impact as they spend all their income on necessities.
While regional frameworks could help address the challenge, whether the bloc can act quickly enough to make a big difference in a short time is an open question, he said.
Short-term emergency subsidies can help address the needs of the poorest, but the long-term focus should be on building resilience, he said, adding that the international donor community can also play a role.
Ng of Oxford Economics said inflation in the Philippines would continue rising faster than in other ASEAN economies. But there may not be any further interest rate hikes as authorities would want to avoid further drag on economic growth.
However, HSBC's Neumann said Manila may raise interest rates even further if the energy price shock persists.
"In Indonesia, Thailand, Malaysia and Vietnam, monetary policy is likely to remain unchanged for a while, with monetary officials weighing both the inflationary effects and the decline in growth," he said.
The longer the disruptions in the Strait of Hormuz remain in place, the larger the effects on growth, he said, because higher energy and food costs will slow Southeast Asia's economic growth, not just through reduced consumption and investment, but also via weaker tourism and exports.
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