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Inflation in Asia has peaked compared with other major economies such as the U.S. and Europe, according to the chief Asia economist at Morgan Stanley.
“Absolutely, inflation has peaked if you look at the data that’s already indicative of that. More importantly, going forward, we think you should see downside risks to inflation,” Chetan Ahya, from the investment bank, told CNBC’s “Squawk Box Asia” on Monday.
“Asia’s average inflation peaked at 5.5% and it’s already down by about half a percent from that peak levels — and that compared with the U.S., which peaked at 9%, and in Europe, which is also around 8.5% and 9%,” he added.
Ahya said there are few signs of demand overheating in Asia, especially since economic growth is still below pre-Covid levels for most countries.
“The way I would describe the state of recovery in Asia is … most of the economies are in mid-cycle stage. I think that’s the most important reason why we think inflation will come in control and central banks will not have to take policy rates into deeply restrictive territory.”
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Last week, Bank of Thailand Governor Sethaput Suthiwartnarueput said there’s no need for the central bank to “undertake heroically large rate hikes” as the country’s economy is only expected to return to pre-pandemic levels at the end of the year.
The Morgan Stanley economist also said goods demand was a key driver in inflation globally, but particularly in Asia.
“Goods demand had seen a massive rise because of pandemic in the U.S. and caused the demand-supply imbalance. But that’s all healing now, demand is coming off,” Ahya noted.
With supply chains improving and inventories rising, the bank expects goods demand to shrink in the months ahead. In addition, Asia’s labor markets — unlike in the U.S. — are not tight, which has helped the region contain inflation pressures, he added.
While Asia’s inflation picture may seem comparatively in check, the Wall Street bank said the exports outlook remains weak.
“What we need to look at from an economic standpoint, in terms of growth implications —the real numbers and the real volume numbers have already decelerated down to about 1% to 3% on a year-on-year basis,” Ahya said.
“This used to be growing at about 10% plus, just about 12 months back. We have seen a major deceleration already, and we think the outlook on good exports for Asia is not looking great.” - CNBC
Asian shares were mixed on Monday after China's central bank trimmed key lending rates as a raft of economic data missed forecasts and underlined the need for more stimulus to support the world's second largest economy.
Retail sales and industrial output both rose by less than expected in July, adding to a disappointing reading on new bank lending.
The cut in rates helped cushion the blow a little and left Chinese blue chips steady, while the yuan and bond yields slipped.
"These are further signs that the post-Shanghai lockdown growth bounce is weakening rapidly," said Alvin Tan, a strategist at RBC.
"Monetary policy is losing traction except possibly for the exchange rate with exports being the one bright spot in the economy."
MSCI's broadest index of Asia-Pacific shares outside Japan was flat, having bounced 0.9% last week.
Japan's Nikkei rose 1.1% as data showed the economy grew an annualized 2.2% in the second quarter, just a touch under estimates.
Investors remain anxious to see if Wall Street can sustain its rally as hopes U.S. inflation has peaked will be tested by likely hawkish commentary from the Federal Reserve this week.
"The FOMC Minutes on Wednesday should reinforce the hawkish tones from recent Fed speakers of being nowhere near being done on rates and inflation," warned Tapas Strickland, a director of economics at NAB.
Markets are still implying around a 50% chance the Fed will hike by 75 basis points in September and that rates will rise to around 3.50-3.75% by the end of the year.
Hopes for a soft economic landing will also get a health check from U.S. retail sales data that are expected to show a sharp slowdown in spending in July.
There is also a risk earnings from major retailers, including Walmart and Target, could be laced with warnings about a downturn in demand.
Geopolitical risks remain high with a delegation of U.S. lawmakers in Taiwan for a two-day trip.
EUROSTOXX 50 futures added 0.4% and FTSE futures rose 0.5%. S&P 500 futures and Nasdaq futures were both down around 0.2% after last week's gains.
However, the S&P index is almost 17% above its mid-June lows and only 11% from all-time highs amid bets the worst of inflation is past, at least in the United States. - mvariety
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