Asia's Inflation Divergence Widens as Energy Prices Soar

Across Asia, headline Consumer Price Index (CPI) inflation has risen significantly this year, driven largely by surging energy prices following the closure of the Strait of Hormuz. However, underlying dynamics within the region remain disparate, with each economy facing distinct challenges and policy responses.

China's CPI inflation remains low, logging the region's lowest rates in recent months, while India faces renewed pressures from food and oil shocks tied to El Niño effects. The country has paused its rate cuts amid protracted currency weakness and resurgent inflation.

The Bank of Japan continues its gradual policy normalisation, given its delayed exit from the prior era of easy monetary policy. Japanese real yields have surged considerably, driven by investor concerns or expectations of higher real yields, possibly tied to a large upcoming fiscal bill and intense capex spending.