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Why Asian Economies Are Expecting A Critical Spike In Prices this 2022

Spike in Prices—The invasion of Ukraine by Russia has thrown Europe into its biggest crisis since World War II, with economic implications reaching as far as Asia.

While Asian equities markets recovered on Friday, following Wall Street’s recovery, analysts warn that rising commodity prices, supply chain disruptions, and inflationary pressures are expected to put burden on consumers in the area and impair daily life.

Energy costs in Asia are projected to rise much further as a result of the war in Ukraine and sanctions on Russia, the world’s second-largest natural gas exporter and third-largest petroleum producer.

According to Trinh Nguyen, a senior economist for Asia at Natixis in Hong Kong, the overall picture appears to be unfavourable but not disastrous.

“Rising oil prices are a net negative for Asia since we are net oil importers,” Nguyen explained. “Inflationary pressure and greater costs will result as a result of this.” This will have a negative impact on consumer purchasing power.”

India, the world’s third-largest oil importer, is one of the Asian countries most vulnerable to an economic shock, according to Nguyen.

“This is obviously bad for India since it will have to pay more for oil,” she said. “We have to ask ourselves, who is going to pay for it?” Will it be subsidised by the government? And if it happens, the entire nation will bear the cost.”

The Indian rupee has already shown signs of weakening against the US dollar on Thursday, according to Nguyen, thus prices for the typical person in India would rise.

A Spike In Prices How It Would Effect Southeast Asia

Higher crude oil and natural gas costs are also having an impact on Southeast Asian economy. Several nations in the area, like Singapore and Indonesia, have denounced Russia’s activities in Ukraine but have refrained from imposing their own sanctions.

Andreas Harsono, a Jakarta-based researcher at Human Rights Watch, is concerned about the impact of rising energy prices on common products.

“If the Ukraine incursion and Russian sanctions spiral out of control, they could increase pressure on the Indonesian rupiah, hurting trade and supplies,” Harsono said “We should expect anarchy if the disruption causes basic food items such as rice, cooking oil, sugar, and milk to vanish from store shelves.”

The impact of the crisis in Indonesia, according to Nguyen, will be “mixed.” On the one hand, Indonesians will pay more for energy, but the country’s position as a major commodity exporter may gain.

“It depends on who you are in Indonesia,” Nguyen added. “If you’re a commodity exporter, you gain more.” However, in a domestic demand-driven economy, customers who will suffer increased prices are critical.”

In China, Trivium China’s Ether Yin predicted that the country would “soon suffer upstream inflation pressure.”

“Chinese officials have already been fighting an uphill battle to keep critical commodity prices under control in order to reduce industrial inflation,” Yin said “Both Russia and Ukraine are major suppliers to China of a number of vital commodities. That work has only become more difficult as a result of the crisis.”

Beijing has dismissed claims that the Kremlin’s activities are a “invasion,” accusing the US of “fanning the flames” of the situation.

The world’s second-largest economy, according to BBVA analyst Xia Le, is unlikely to suffer a substantial economic setback.

“Because China is such a large export economy, the impact is likely to be small in the short and long term,” Xia said “They import energy items from Russia and some agricultural products from Ukraine, but this should not pose a significant problem for China.” Even if the situation escalates and supply problems occur, China should be able to find new energy sources quickly.”

The crisis’ repercussions will be limited, according to Xia Le, because China and Russia have deep connections, and Beijing is unlikely to join the US and its allies in imposing punishing economic sanctions on Moscow.

Beijing, in fact, may be able to cushion the damage. On Thursday, China’s General Administration of Customs stated that all wheat import restrictions against Moscow will be lifted. The agreement was one of several reached during Russian President Vladimir Putin’s visit to Beijing earlier this month.

US President Joe Biden announced further sanctions against Russia, saying that the US will “restrict Russia’s ability to do commerce in dollars, euros, pounds, and Japanese yen.”

Beijing and Moscow, according to Xia Le, will most likely find a solution.

“I believe they will use the renminbi as a settlement currency,” Xia predicted. “Russia may become dependant on China, but China will have to tread carefully when dealing with Russia in terms of commerce.”

A Spike In Prices How It Would Effect Northeast Asia

Japan and South Korea, meanwhile, are expecting greater inflation, but only a small economic impact in the immediate term.

In response to Russia’s deployment of soldiers in Ukraine, Japanese Prime Minister Fumio Kishida declared on Friday that Tokyo would intensify sanctions against Russia. South Korea has stated that it will work with the international community to impose sanctions on Russia, but has refrained to impose any penalties of its own.

Tom Learmouth of Capital Economics said that he does not expect the crisis to have a significant impact on the Japanese economy because Russia accounts for only 2% of Japan’s imports.

However, he predicted that a surge in energy prices resulting from severe disruptions in Russian exports “would push Japanese inflation to 2% from April until the end of the year.”

The Bank of Japan, on the other hand, is unlikely to respond by raising policy rates, according to Learmouth.

“It wouldn’t be able to say that inflation was consistently overshooting its 2% target,” he said.

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