Rising Inflationary Pressure and Bond Yields in EM Asia

EM Asian central banks are being forced into rate hikes as inflationary supply shocks from the Iran War drive up PPI and narrow yield spreads against developed markets, triggering capital outflows.

Key Takeaways

• 1.The Iran War supply shock is driving global inflationary pressures, initially through significantly higher Producer Price Indices (PPI) due to rising commodity prices.
• 2.Narrowing bond yield spreads between EM Asia and developed markets (US/Japan) are triggering capital outflows and putting severe pressure on regional currencies.
• 3.Central banks in the region are pivotting toward rate hikes; Indonesia has already hiked by 50bps, and India is expected to follow at its next meeting.

Table of Contents

• Inflationary pressures are on the rise, driven by higher PPI
• Net Energy Imports
• Appendix

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