By the Editorial team
Sustained increases in energy and food prices would not only squeeze household consumption and corporate investment but could also dampen tourism and exports
The latest spike in global energy prices, triggered by tensions in the Middle East, is stoking inflation worries across Southeast Asia and threatening to hit the region’s poorest households hardest, economists warn. Rising fuel and electricity costs are filtering into transport, food, and basic services, putting pressure on policymakers who are balancing inflation control with fragile growth.
“The conflict in the Gulf poses a big challenge to economies in Southeast Asia,” said Frederic Neumann, chief Asia economist at HSBC. “In particular, rising energy costs are likely to push up inflation across the region.” Poorer economies face the greatest strain, he noted, because they have less access to alternative energy sources and more limited fiscal room to cushion the blow through subsidies or targeted support.
Philippines under the sharpest pressure
Among ASEAN economies, the Philippines stands out as facing some of the most acute inflation pressures. Jun Hao Ng, assistant economist at Oxford Economics, said price pressures there are “among the most intense, if not the worst, in ASEAN,” reflecting both the country’s reliance on imported fuel and a relatively lighter use of broad-based subsidies and price caps.
On 23 April, the Bangko Sentral ng Pilipinas (BSP) raised its policy rate by 25 basis points to 4.5 percent, after core inflation jumped from 2.4 percent in February to 4.1 percent in March. That move made the Philippines the second ASEAN member, after Singapore, to tighten monetary policy in direct response to the global energy shock.
Ng noted that inflation in the Philippines has been running ahead of regional peers “because it relies less on broad fuel subsidies and price caps”, forcing the central bank to lean more heavily on interest rates to anchor expectations.
Neumann echoed this assessment, pointing out that the Philippines is both a significant food importer and a country with fewer price controls and subsidies on energy. These structural features expose Filipino households more directly to swings in global commodity markets, with fuel and food price spikes quickly translating into higher headline inflation.
Differing inflation dynamics across ASEAN
Thailand and Vietnam are also grappling with notable price pressures as higher energy and input costs seep through their economies. By contrast, Malaysia and Indonesia have so far contained headline inflation more effectively through long-standing subsidy schemes and price controls on key fuels and basic goods. However, Neumann cautioned that even in those markets, indirect effects are likely to appear via non‑subsidised energy, food, and services, especially if elevated prices persist.
Vietnam’s own authorities have flagged growing risks. The Finance Ministry recently warned that inflation could climb to 5.5 percent this year, well above the government’s 4.5 percent target. “In the last 10 years or so, inflation has stayed below 4 percent, so an increase of above 5 percent starts to send alarm bells in Vietnam,” said Raymond Mallon, an independent economic adviser based in Hanoi. With agricultural products making up around 30 percent of Vietnam’s consumer price index, he expects higher agricultural prices—partly driven by fertiliser shortages and higher transport costs—to have an even greater impact than direct fuel price increases.
Mallon argued that Vietnam still has more policy space than some of its neighbours to cushion the shock, citing the government’s focus on growth and capacity to deploy fiscal measures. He contrasted this with Laos, where inflation is nearing 10 percent. Laos’ heavy dependence on imported fuel from Thailand leaves it highly exposed to supply disruptions and price spikes, stretching both household budgets and government resources.
Vulnerability of the poorest and policy trade‑offs
Across the region, the poorest households are bearing a disproportionate share of the burden. “The poorest people in society will tend to feel the greatest impact as they spend all their income on necessities,” Mallon said. Short‑term emergency subsidies can help cushion the immediate blow for vulnerable groups, he added, but longer‑term efforts must focus on building resilience—improving energy efficiency, diversifying supply, and strengthening social safety nets.
Regional cooperation could, in principle, play a role in managing supply disruptions and coordinating policy responses. However, Mallon questioned whether ASEAN can move quickly enough to make a meaningful difference in the short run. He suggested that the international donor community could also help, particularly in lower‑income economies where fiscal buffers are thin.
Diverging monetary paths ahead
Looking ahead, inflation in the Philippines is expected to continue running faster than in most other ASEAN economies, according to Ng, although he believes the authorities may hesitate to deliver further aggressive rate hikes for fear of undermining growth.
The balance between containing inflation and supporting activity is becoming increasingly delicate as higher borrowing costs feed into credit conditions and investment decisions.
HSBC’s Neumann sees a somewhat firmer stance from Manila if energy prices stay elevated.
The BSP could raise rates again should the shock persist, he said, especially if there are signs that higher energy and food costs are feeding into wages and broader price-setting behaviour.
In contrast, central banks in Indonesia, Thailand, Malaysia, and Vietnam are more likely to keep policy rates on hold for now, weighing the inflationary impact of higher energy against weakening growth momentum.
Neumann warned that the longer disruptions in the Strait of Hormuz last, the more pronounced the drag on Southeast Asia’s economies will be. Sustained increases in energy and food prices would not only squeeze household consumption and corporate investment but could also dampen tourism and exports—two key pillars of growth for several ASEAN members. For policymakers, the challenge will be to manage these risks without derailing the region’s post‑pandemic recovery.