Why is the inflation rate low in some Asian countries?

Very recently, the RBI governor Shaktikanta Das has predicted food price inflation in India due to the recent rise in tomato prices. But till date, India’s inflation is much lower than the rest of the world. This is a common circumstance amongst most other Asian countries as well. When the whole world is grappling with upcoming inflation, many Asian countries are not. China, Taiwan, Hongkong, Macau, Japan, Malaysia all are experiencing much lower inflation rates.  Why?  What is the secret?

Lockdown!

It’s because of the much higher impact of Covid, in South East Asia, people were cooped inside their homes for a very long period of time, and their consumption went down.  Since consumer spending was low, inflationary pressure was lower.  

If we look at China alone, it’s a huge manufacturing base for the world.  But because of incessant focus on Covid and the resulting lockdown, not just consumption, but production was also impacted.  This reduced income and hence demand. China also is a more state controlled economy and this enables the state to control inflation differently compared to other countries.Changes in subsidies and other price control measures help check inflation.  To bolster growth, the Chinese government plans to use its usual playbook of spending on infrastructure. This will push the economic growth and China is also likely to see higher inflation later in the year.

Taiwan’s inflation is lower than in many other countries, as the government strictly controls prices of imported energy, which has helped reduce fluctuations in the consumer price index (CPI).

Hong Kong’s inflation is low because of the slump in the housing market which constitutes 40% of their CPI. This slump is after a long stint of 13 years when housing prices were on a continuous rise.  Sharp increase in borrowing rate is behind this unprecedented slump.

Macau’s economy is primarily based on tourism.  Hence the economy was badly hit by the lockdown.  Tourists from all over the world, especially China were highly impacted causing Macau’s real GDP to fall by 30% in 2022.

In Japan, low inflation is not a new phenomenon.  It has been low for the past 30 years, most important reason being its ageing population.  30% of Japan’s population is above 65 years.  So lower working population, high demand for savings and low consumption.  And because it has experienced low inflation for decades people got used to it and they do not expect a big pay hike, there is no urge to buy things quickly anticipating a price rise etc.  So the cycle continues and the Bank of Japan is struggling to get the prices up.

Malaysia is experiencing a low inflation rate due to the government’s interventions such as subsidies and monetary assistance to the people.

In summary, while each country has a slightly nuanced cause behind their low inflation rate, the overarching reason is the more significant impact of covid and a much prolonged lockdown this region has experienced.