MANILA, Philippines — Easing global oil prices are expected to pave the way for lower inflation and improved external position across Asian economies, with the Philippines and Thailand projected to experience the largest impact on inflation, according to ANZ Research.
In its Asia Macro Weekly report, ANZ Research said average global oil prices in September have softened so far and the transmission to pump prices in economies in the region is underway.
“If the weakness in global oil prices persists, disinflation will gather pace, and most of the region’s external positions will improve,” it said. “Thailand and the Philippines will see the biggest drag to inflation.”
According to ANZ, global oil prices have eased this month with average Brent crude oil prices down by seven percent from August.
It also noted that at one point, prices fell below the $70-per-barrel mark for the first time since December 2021.
The downward pressure, ANZ said, reflected weak market sentiment amid renewed concerns over demand due to slowing US growth and sluggish economic activity in China. This is despite supply disruptions in Libya and the extended output cuts from the Organization of the Petroleum Exporting Countries.
ANZ Research said the fastest channel of transmission of lower global oil prices is typically through inflation.
“Thailand and the Philippines are likely to see relatively larger drags on inflation, with a pass-through of 0.2–0.3 percentage points for every 10-percent fall in global oil prices,” the bank said.
It also said that economies with a higher weight of food in their inflation basket are more likely to see a greater reduction in inflation from easing global oil prices, assuming all other factors influencing food prices remain constant.
“Within Asia, food has the highest weight in the inflation baskets of India, Thailand and the Philippines,” ANZ Research said.
Headline inflation sharply slowed to 3.3 percent in August from 4.4 percent in July, its lowest in seven months. From January to August, inflation averaged 3.6 percent, well within the two to four percent target of the Bangko Sentral ng Pilipinas.
“The combination of lower inflation and stronger external positions will open up scope for a deeper-than-anticipated rate-cutting cycle in the region, particularly if weaker global growth is a key driver keeping energy prices subdued,” ANZ added.
The BSP Monetary Board slashed interest rates by 25 basis points in its meeting last month, bringing the key rate to 6.25 percent from the over 17-year high of 6.50 percent, its first rate cut in nearly four years.