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Asia's Inflation Has Peaked Compared With Major Economies in Other Regions, Morgan Stanley Says

Kiyoshi Ota | Bloomberg | Getty Images
  • 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.

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."

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. 

Weak exports growth

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."

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