- 2Q US PCE inflation surprised higher despite modest real GDP growth.
- Core US inflation eased slightly but remains uncomfortably high.
- Asia’s inflation has risen, but mainly from a low 2025 base.
- Food and core inflation in Asia remain largely contained.
- India, Indonesia, and the Philippines need monitoring despite regional relief.
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COMMENTARY: Inflation trends in the region
US inflation has been much higher than expected this year, creating a great deal of adjustment in Fed policy pricing and US fixed income yields. Among the various inflation prints, perhaps the most striking one came out with the 2Q national accounts release last week. Although real GDP growth, at sub-2%, pointed to relatively modest demand dynamic, the personal consumer expenditure (PCE) deflator was up by a striking 5.1% during the quarter. That core PCE inflation, while still uncomfortably high, was down a tad, was the only saving grace.
But what about inflation dynamics in Asia, where full fuel price pass-through is only the case for a few economies? Also, since there are no tariff or immigration tightness-related inflation in Asia, there ought to be less stress in the region. The data show that precisely. Our regional aggregate estimates of various types of inflation find, unsurprisingly, that inflation has picked up over the past year. But unlike the US, inflation is coming from a very low base set in 2025. Once the base effect is accounted for, the ongoing rise is hardly alarm-worthy.
Beyond fuel price rise-related headaches, there are areas that have held forth well so far. Defying El Nino and likely disruption to fertilizer supply from the Middle East, food inflation has been largely benign in the region. There is also little sign of high fuel prices spilling over to other areas, with core inflation at sub-2%, a far cry from the worrisome numbers out of the US.
Developments are not all benign, there is room for some caution with the trends in India, Indonesia, and the Philippines. But when seen in comparison with the red-hot numbers in the US, Asia’s price situation is a source of qualified relief.
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