Market Insights

Inflation Stubbornness in Southeast Asia: Implications and Strategies for 2024

By 13 June, 2024No Comments

Indonesian currency

In the battle against inflation, central banks wield a potent weapon: the adjustment of interest rates. By raising rates, they curb spending and lower prices, but this tactic can also slow economic activity and weaken consumer spending—the primary growth driver. Currently, we face inflation stubbornness, where high inflation persists despite traditional measures. This article examines the causes and implications of this phenomenon and explores strategies central banks employ to manage it.

Understanding inflation stubbornness is crucial for navigating today’s economic challenges. High inflation erodes purchasing power, squeezing consumers and businesses alike. Conversely, too-low inflation or deflation can lead to postponed purchases and economic stagnation. Lowering interest rates can stimulate the economy, increasing demand and inflation, but must be balanced carefully.

We will also identify strategies and opportunities for businesses and investors to thrive in this volatile environment, providing a roadmap to mitigate risks and capitalize on emerging prospects.

Inflation trends across key economies

Indonesia: Year-over-year headline inflation was 3.0% in April 2024. The month-over-month inflation rate was 0.25%, and the year-to-date rate was 1.19%. Core inflation for April was 0.29%, slightly higher than March’s 0.23%.

Singapore: Core inflation remains sticky after peaking at 5.5% in January and February last year. It cooled to 3.1% in January but rose to 3.6% in February due to Lunar New Year effects on services and food prices.

Vietnam: Annual inflation rose to 4.4% in April 2024 from 3.97% in March, the highest since January 2023. Annual core inflation increased to 2.79% from 2.76% in March. Monthly consumer prices edged up 0.07% in April after a 0.23% fall in March.

Malaysia: Headline inflation was moderate at 1.7% during the first quarter (4Q 2023: 1.6%). For 2024, headline and core inflation are projected to remain between 2% ‒ 3.5% and 2% ‒ 3%, respectively.

The US: The May 15, 2024, CPI report showed core inflation slowed from 3.8% in March to 3.6% in April. Headline inflation slowed from 3.5% to 3.4%. Despite this downward trend, the Fed is unlikely to ease its restrictive policy soon.

Geopolitical Tensions and Their Impact on Inflation

Since 2023, the world has faced escalating geopolitical challenges and increasing global trade tensions. Heightened conflicts between major powers over trade, technology, and regional influence have intensified.

These conflicts have disrupted supply chains, increased energy, and commodity prices, and caused currency fluctuations. These disruptions lead to higher production and transportation costs, contributing to overall price increases. Additionally, sanctions and trade barriers restrict the flow of goods, further exacerbating inflation. Increased defense spending and market uncertainty also add to inflationary pressures.

With continuous conflicts and escalating geopolitical tensions, the global supply chain has been severely disrupted, driving up commodity prices. These challenges continuously increase the inflation rate, making interest rate cuts a risky decision in this context. It is expected that this inflation situation will not be controlled soon. Therefore, we must accept that central banks’ interest rates will likely remain elevated soon.

Central Banks’ Cautious Monetary Policies in Key Economies


During its April 23-24 meeting, Bank Indonesia (BI) unexpectedly increased the BI-Rate by 25 basis points to 6.25%. The deposit facility and lending facility rates were also raised by 25 basis points to 5.50% and 7.00%, respectively. This decision aimed to stabilize the rupiah amid a worsening global risk environment and keep inflation within the 1.5%–3.5% target range for 2024 and 2025.

This move was part of a broader strategy to preemptively address inflationary pressures while supporting sustainable economic growth through a mix of monetary, macroprudential, and payment system policies.


Singapore is a small, trade-dependent economy where gross exports and imports exceed three times its GDP. Given the high import content of domestic expenditure, the exchange rate significantly influences inflation more than domestic interest rates. Consequently, the Monetary Authority of Singapore (MAS) sets the policy band for the Singapore dollar nominal effective exchange rate (S$NEER), strengthening or weakening the currency against its main trading partners. The S$NEER is a composite index based on the bilateral exchange rates between Singapore and key trading partners. This trade-weighted exchange rate assigns weights to various currencies according to Singapore’s trade relationships, ensuring the Singapore dollar’s performance aligns with its major trading partners, crucial for maintaining general price levels.

MAS does not set or control the exchange rate’s precise level in real-time. Instead, the S$NEER can fluctuate within an undisclosed policy band. If the S$NEER moves outside this band, MAS intervenes by buying or selling Singapore dollars to stabilize the currency. MAS has tightened monetary policy five times since October 2021, including two off-cycle adjustments, to combat inflation during the pandemic and amidst global geopolitical instability. According to a monetary policy statement from MAS, the current rate of appreciation of the S$NEER policy band will be maintained, with no changes to its width or center level.

By allowing the SGD to appreciate, the cost of imported goods and services becomes cheaper, reducing “imported inflation.” This helps mitigate domestic cost pressures by lowering the overall cost of production and goods in Singapore.

Maybank economist Chua Hak Bin noted that there is a low likelihood of policy adjustments at the next MAS meeting in July, with any potential easing expected in October at the earliest.


The State Bank of Vietnam (SBV) will maintain the policy interest rate at approximately 4.5%, unchanged since the last reduction in June 2023, as confirmed by Deputy Governor Dao Minh Tu.

The SBV aims to balance moderate inflation control with economic growth stimulation. Consequently, the Vietnamese dong (VND) has depreciated by 5.9% against the U.S. dollar since early this year. With SBV’s intervention, the pressure on the USD/VND exchange rate has lessened, reducing the depreciation to 4.8%.


Malaysia’s central bank maintained its overnight policy rate at 3% for the sixth consecutive meeting in May 2024, in line with market expectations. Policymakers stated that the current monetary policy supports the economy and aligns with the outlook for inflation and growth. From the beginning of the year until May 15, 2024, the ringgit depreciated by 2.4% against the US dollar, mirroring the movements of other regional currencies.

US Federal Reserve

The Federal Reserve System (FED)

The Federal Reserve System (FED), the central bank of the United States, holds significant global influence due to its regulation of monetary policy in the world’s largest economy. It controls interest rates and impacts the U.S. dollar, used in about 90% of global transactions. Consequently, central banks worldwide, including those in ASEAN countries, often adjust their policies according to the FED’s decisions to prevent their currency values from dropping compared to the USD.

Post-pandemic, inflation surged as prices for essentials like rent and food soared. In response, the FED began raising interest rates. Since March 2022, it has increased its policy rate by 525 basis points to the current range of 5.25%-5.50%. Recent inflation data has strengthened the argument for caution in reducing rates. Fed Chair Jerome Powell emphasized the need for inflation to move “sustainably” down to their 2% target before easing policy.

The FED’s cautious approach to managing inflation is necessary for long-term stability but stagnates short-term economic growth. Higher borrowing costs reduce consumer spending and business investment, increasing unemployment.

Higher U.S. interest rates make dollar-denominated assets more attractive, potentially leading to capital inflows into the U.S. and strengthening the U.S. dollar. This movement often weakens major currencies like the Japanese Yen, Euro, and British Pound, causing capital outflows from other markets. A stronger dollar makes U.S. exports more expensive and imports cheaper, potentially increasing the U.S. trade deficit and affecting countries reliant on U.S. exports.

Emerging markets with significant dollar-denominated debt face higher debt servicing costs as the dollar strengthens, potentially causing financial instability. U.S. monetary policy also influences global financial markets, with the FED’s cautious approach leading to increased volatility as investors adjust expectations regarding interest rates and economic growth. Global stock markets may fluctuate based on U.S. monetary policy and its impact on corporate earnings and economic stability.

ASEAN central banks, like the FED, have adopted a cautious stance on interest rate cuts, mindful of the risks associated with premature easing. While higher rates cool economic activity and curb inflation, cutting rates too soon could reignite inflationary pressures. Central banks aim to balance stabilizing inflation with supporting economic growth.

A key concern is the potential for wage-price spirals, where rising wages lead to higher prices, which then lead to demands for higher wages. Additionally, global economic uncertainties make the impact of rate cuts unpredictable.

Broader Economic Implications

To control inflation, central banks raise interest rates on loans to commercial banks, which pass on higher rates to businesses and consumers. This increases borrowing costs, discouraging spending on major purchases like housing and capital equipment, leading to reduced demand and lower prices.

High inflation reduces purchasing power, decreasing disposable income, and shifting consumption patterns towards essential goods over discretionary spending. In the ASEAN region, where many are in lower to middle-income brackets, this impact is particularly significant.

Businesses face increased input costs, compressing profit margins and deterring investment, often resulting in delayed or scaled-back expansion plans, affecting economic growth and job creation.

Southeast Asian currencies have devalued compared to the dollar; for example, the Vietnamese dong (VND) has depreciated by 5.9% and the Malaysian ringgit by 2.4% since early this year. This devaluation stems from lower regional interest rates compared to those set by the Federal Reserve. While this stimulates exports due to lower exchange rates, it also increases the cost of imports, potentially reducing import volumes.

Strategies for Businesses and Investors

For businesses

To mitigate the risks posed by persistent inflation, businesses should proactively implement the following strategies:

  • Supplier Diversification: Expand sourcing options to ensure supply chain resilience and minimize disruptions. Read more here about how ARC Consulting can help with Sourcing & Supply Chain Management in China and Across Asia
  • Data-Driven Inventory Optimization: Use data analytics to forecast demand, optimize inventory levels, and minimize carrying costs while ensuring product availability.
  • Technological Integration: Adopt innovative technologies like AI to streamline supply chain operations and enhance forecasting accuracy.
  • Dynamic Pricing Strategies: Regularly adjust pricing strategies in response to rising costs, balancing profitability with customer retention.
  • Strategic Supplier Partnerships: Build collaborative relationships with key suppliers to explore cost-saving initiatives and ensure a stable supply.
  • Continuous Market Monitoring: Stay informed about economic trends and inflation to adapt supply chain strategies and maintain competitiveness. Stay up to date and read our latest news & insights.

For Investors

In the current inflationary landscape, investors in ASEAN should prioritize diversification and inflation-hedging strategies to protect their portfolios. Traditional hedges like commodities, real estate, and Treasury Inflation-Protected Securities (TIPS) remain viable options.

Real assets, particularly commodities and publicly traded real estate, offer strong diversification potential during periods of high inflation. Commodities often see price increases due to inflationary pressures, while Real Estate Investment Trusts (REITs) can perform well when inflation and interest rates rise.

Staying invested in equities is also recommended. Companies with robust pricing power, especially in technology and healthcare, can adjust prices to offset rising costs, safeguarding revenue, and earnings as an effective inflation hedge.

For investors in ASEAN, local inflation-linked bonds, and investments in sectors with strong pricing power can be valuable strategies. Diversifying portfolios to include assets that perform well during inflationary periods can mitigate risk. Additionally, focusing on sectors resilient to inflation, such as consumer staples and utilities, can provide stability during uncertain economic times.

Investors must carefully assess sector-specific opportunities and risks, tailoring their strategies to the unique economic conditions of each ASEAN country. By diversifying holdings and incorporating inflation-hedging assets, investors can navigate the challenges of the current inflationary environment and position themselves for potential gains.

Potential Investment Opportunities

In the high-inflation context of ASEAN in 2024, several potential investment opportunities emerge:


  • Energy: Investments in oil and gas companies, especially those with strong exploration and production capabilities in the region, could be lucrative due to rising energy prices. Renewable energy projects could also benefit from increased demand for alternative energy sources.
  • Metals: Gold and other precious metals are often considered safe-haven assets during inflationary periods. Mining companies in ASEAN producing gold, copper, or nickel could offer attractive investment opportunities.
  • Agricultural Products: Investing in agricultural commodities like palm oil, rubber, or rice, which are major exports for several ASEAN countries, could provide a hedge against inflation.

Indonesian mine

Real Estate:

  • Residential Property: Despite rising interest rates, demand for housing remains strong in many ASEAN countries due to rapid urbanization and a growing middle class. Investing in residential properties in prime locations or those catering to specific demographics (e.g., affordable housing) could be profitable.
  • Commercial Property: Warehouses, logistics facilities, and data centers are in high demand due to the growth of e-commerce and digital services in the region. Investing in these types of commercial properties could generate significant returns.

Defensive Sectors:

  • Consumer Staples: Companies producing essential goods like food, beverages, and personal care products are resilient to inflation, as demand for these products remains stable.
  • Healthcare: The healthcare sector is less affected by economic downturns and can benefit from increased demand for medical services during inflationary periods.


E-commerce: The e-commerce sector continues to grow rapidly in ASEAN, driven by increasing internet penetration and smartphone usage. Investing in e-commerce platforms or companies that provide logistics and payment services for online retailers could be profitable. Read one of our case studies on how ARC Consulting helped Fashion brand increases online sales in China after e-commerce consulting.

Fintech: Financial technology companies offering innovative solutions for payments, lending, and investments are gaining traction in the region. These companies could benefit from the growing demand for digital financial services.

Inflation stubbornness presents significant challenges and opportunities for 2024, globally, including ASEAN countries. Understanding the factors driving persistent inflation and the cautious approaches of key central banks is crucial. Businesses and investors must adopt strategic measures to navigate this environment, leveraging inflation-hedging investments and sector-specific opportunities. With careful planning and adaptive strategies, it is possible to mitigate risks and capitalize on opportunities in these dynamic regions.

The stubborn inflationary environment underscores the importance of diversifying supply sources, leveraging technology and data analytics for inventory management, and maintaining strong supplier relationships. For investors, staying vigilant about central bank policies, particularly the Federal Reserve’s cautious approach, is crucial as these decisions influence global financial markets and currency stability.

Businesses must optimize pricing strategies and continuously monitor economic changes. Investors should consider the potential for increased market volatility and the implications of shifting capital flows driven by interest rate differentials.

In a high-inflation environment, strategic planning and adaptive measures are critical. Businesses and investors must remain flexible, continually reassess their strategies, and be prepared to adjust to evolving economic conditions. By doing so, they can navigate the complexities of the current economic landscape and position themselves for sustained success amid inflationary pressures.

Read more about our financial advisory & strategic solutions.


Definition of Stubborn Inflation

Geopolitical Tensions and Their Impact on Inflation

Current inflation trends and central banks’ cautious approach in monetary policy

Strategies for Businesses and Investors, and Investment Opportunities

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