Inflation in Asia: managing costs in both directions
Inflation in Asia: managing costs in both directions July 28, 2026 What’s new: The spectre of inflation is hardly new. What has changed is the number of forces pushing prices in different directions—and how difficult they have become for executives to interpret. There is a broad challenge for inflation and economic forecasting. Energy prices, physical shortages, futures markets, demand expectations, and geopolitical risk are interacting in ways that are increasingly difficult to interpret in real time. We may need several months of data before we can distinguish a temporary market dislocation from a more persistent shift—and only then begin to shape an appropriate response. During a recent China Management Forum session, one speaker demonstrated how confusing the inflation picture can be by quoting the US president’s response to US inflation when it breached 4%. In June, after the US announced 4.2% inflation, Trump said, ‘I love the inflation’. The US is working on a different economic logic not taught in textbooks or business schools. The remark was characteristically disorienting, but the argument behind it was familiar: Trump assumes price shocks are temporary, driven by war and energy disruption, and will subside once the crisis passes. But that is precisely the problem for executives in Asia: when one shock recedes, many others emerge. Executives are grappling with how to reliably chart the future when the normal political and economic scripts have broken down. The US tariffs are a case in point. It was noted that while they have been curtailed, at least temporarily, this does not mean prices are returning to normal. In my view, the US is dialling down tariffs because it is very concerned about inflation at home, which is positive for our part of the world. They initiated many Section 301 investigations, but these cannot be implemented immediately, unlike the 10% tariffs under Section 122, which will expire July 24. The US Supreme Court’s verdict to strike down the IEEPA tariffs had a chilling effect. Trade wars could be rekindled, but let’s see. One reason is that now shortages in critical inputs, including rare earths, continue to wreak havoc on many supply chains. For export-led Asian economies, the bigger risk is coming from China’s export controls on rare earths. Companies are telling us that the hit from China’s export controls is a bigger challenge than US tariffs. Between the lines: Asia is not facing a single inflation story. Energy, food, and security-sensitive inputs are becoming more expensive and volatile While weak demand, technological improvements, and eventual supply responses are exerting downward pressure elsewhere Why it matters: Business leaders in our recent IMA Asia forum debated the following: Is this another inflation cycle—painful, but manageable through hedging, pricing and consumer segmentation? Or are geopolitics, resource constraints, and the cost of resilience creating a structurally higher-cost economy? There’s a structural question: will the inflation regime shift higher in the long run? Instead of targeting 2% inflation, will economies move toward 3% or 4% as the new normal? Will central banks become more tolerant of above-target inflation? That would amount to a significant change. Or is the bigger question that AI will lead to deflation that is even more destabilising? The debate: Business leaders in consumer firms were comfortable with the idea that inflation could be planned for and managed. The answer can be as straightforward as passing the cost to the consumer to protect margins. In the consumer packaged goods industry, growth has come from pricing rather than volume. This trend began with COVID and continued through the Russia-Ukraine war, leading the industry to believe it could survive by relying primarily on price increases. But there is a limit to what consumers will bear. Companies now recognise the need to balance price and volume growth—because if consumers begin to walk away from your brand and trade down, you risk long-term losses. One executive made the point that consumer segmentation allows MNCs to develop targeted strategies. You must address two main consumer segments when inflation hits: one willing to pay for health, quality, or innovation, and another focused on value. Singapore is a very good example. People cook at home rarely; a high percentage of meals are consumed outside. As prices rise, value consumers will shift from a $5 coffee to a $1 coffee. But when people start eating at home to save money, they still want quality ingredients to replicate the eating-out experience. In my experience in coffee and earlier in the sauces industry—after COVID, people began buying more premium products as they reduced out-of-home consumption. This can mean that, if there is flexibility in spending, inflation does not wipe out premiumisation or the middle tier. Some consumers will down-trade to even cheaper brands, while premium consumers may shift to mainstream brands, and those who typically buy out-of-home may move into the premium segment. One executive described this in terms most people can relate to. We often use the term ‘squish, squeeze, and swap’ to describe consumer behaviour—like what you do with toothpaste as it runs out. Once you’ve squished and squeezed the last bit out, if you still can’t afford more, you swap to a lower-priced brand. This is typical during periods of inflation. But others are concerned that inflation will hit value consumers hard, who do not have the flexibility of discretionary purchases. There is a stark difference between delaying the purchase of something like electronics versus food. I expect H2 will see an uptick in inflation, especially in food and electronics. There are only a handful of countries powering AI. Apple has increased prices due to chip shortages, and this is happening everywhere in compute. For a company like ours, we can procure new computers every five years instead of our usual four. Waiting has a limited impact on our productivity. When inflation hits food, salaries may have to be reconsidered. But in Asia, it is not so easy for many people to simply defer or buy cheaper food or fuel for
