Oil price spike not yeta threat to inflation in Asia — think tank

MANILA, Philippines — The jump in world oil prices last Friday following the killing of a top Iranian general in a US airstrike will have limited impact on inflation and is unlikely to stop further monetary easing in Emerging Asia, said London-based Capital Economics.

Oil prices rose by four percent after the death of Gen. Qasem Soleimani was announced. The global benchmark Brent crude settled at $68.60 per barrel.

The macroeconomy research firm, however, said this “would need to rise much further” before it could have a major impact on inflation or monetary policy across the region.

“Given that energy and transport prices have a relatively low weight in most country’s inflation baskets, this jump in oil prices is only likely to push up inflation by around 0.1 percentage point,” said Capital Economics.

“With the key exceptions of China and India, inflation across most of the region is very low, and policymakers are unlikely to be too concerned,” it said.

A much bigger risk that policymakers are watching out for is the escalation of the crisis in the Middle East to a “full-blown military conflict” which may push up global oil prices to over $100 per barrel.

“This would be more likely to unnerve policymakers, especially in India, Vietnam and China, where inflation is already above target. But so long as this is avoided, we think most central banks in Emerging Asia will cut interest rates over the coming months,” said Capital Economics.

Last December, the Bangko Sentral ng Pilipinas (BSP ) kept policy rates steady as inflation outlook for the next two years continued to lean slightly toward the upside.

The Monetary Board kept the interest rate on the reverse repurchase facility at four percent, while the rates on overnight deposit and lending facilities were left unchanged at 3.5 percent and 4.5 percent, respectively.

In all, the central bank slashed interest rates three times by a cumulative 75 basis points in 2019, partially unwinding a tightening cycle that saw rates jump by 175 basis points.

According to the BSP, the balance of risks to the inflation outlook continues to lean slightly toward the upside in 2020 and toward the downside in 2021.