By Robin Harding

The world is experiencing a dramatic bout of inflation. Except for the places where it is not.

Sharp price rises in the United States and United Kingdom — where the headline consumer price index is up by 6 per cent and 4 per cent, respectively — have raised fears of a disastrous mistake by central banks and a return to the chronic inflation of the 1970s.

But across much of Asia, price rises are subdued. That divergence holds lessons for economic policy, now and in the future.

In China, the CPI is up by 1.5 per cent compared with a year ago, while in Japan, as usual, inflation is roughly zero. In Australia, the headline CPI may be up by 3 per cent, but underlying inflation of 2.1 per cent is towards the bottom of the central bank’s target range.

Only two big emerging markets in Asia have inflation running above 5 per cent — Sri Lanka and Pakistan — compared with many in Europe and South America. Seen from Tokyo, Beijing or Jakarta, the global surge in inflation does not look global at all.

This is true even though Asia imports a lot of energy and has suffered the same jump in prices for oil, gas, coal and other commodities as everywhere else in the world.

The reason Asia’s inflation is mild and not severe comes down to one simple factor: It handled the COVID-19 pandemic better than the rest of the world.


Across most of the region, countries managed to avoid compulsory lockdowns altogether, like South Korea; limit them in scope and duration, like China; or delay such measures until deep into 2021 when vaccines were becoming available, like New Zealand.

The consequences of this relative success are now playing out in several ways.

On the demand side of the economy, Asia experienced fewer of the dramatic swings in consumption from services to goods and back again that marked the experience of the US and Europe, as they went into lockdown and came back out again.

If you were never locked up at home, you never felt the need to buy a treadmill, a new television and enough lumber to deck the back yard.

If you could keep up regular haircuts, dental checks and drinks with friends, meanwhile, you had no need to rush out to the hairdresser, the dentist and the nearest bar when the economy reopened.

Asians have also, by and large, been more cautious than Europeans or Americans when their economies do open up.

In Japan, for example, elderly households account for almost 40 per cent of consumption, as Bank of Japan governor Haruhiko Kuroda noted in a recent speech. But even though Japan’s retirees are now largely vaccinated, their consumption of services has not yet returned to normal, let alone exhibited a post-pandemic boom. Smaller swings in demand meant less pressure for supply to respond.