Asia takes over: A very important change in the EM inflation regime

Research evidence excerpt

Asia takes over: A very important change in the EM inflation regime

17 June 2026

EM Special Publication

lightly, almost certainly due to the rapid deployment of fiscal policy (in the form of

price caps) to cushion the blow.

What does all of this mean from a markets perspective? One top-down observation

is that Asian inflation momentum marks a striking change from recent years when

price rises have been subdued and inflation expectations were perceived as well

anchored, at least compared to the rest of the EM complex. While the picture in Asia

is itself heterogenous, this has important implications for bond markets.

From an FX perspective, we've argued that real interest rates are an important

explanatory variable behind Asia FX underperformance (in spite of undervalued

currencies, resilient exports and in some cases strong domestic equity markets).

This conclusion is reinforced by Figure 10, which shows a very clear relationship

between relative FX performance and ex ante real rates over the conflict (India,

Korea, Thailand and the Philippines are all where you would expect based on this

relationship). In the short term, an easing of supply worries will help ease pressure

on Asia FX and rates (see our colleagues' note from Monday). But, while central

banks remain reluctant to raise local rates, and in some cases have resorted to

tightening offshore or dollar-based rates instead, we struggle to sign up to Asian

currencies paring the underperformance we've seen of late.

Figure 1: For the first time in a decade and a half, Asian Figure 2: Asian and Latin American energy importers have

inflation momentum looks set to accelerate past CEEMEA seen inflation momentum sharply pick up

and LatAm

18% 20% Spot yoy inflation and predicted in 12m by 3m run rate

Asia CEEMEA Lat Am