Asia confronts new inflation, fiscal threat as oil tops US$100

Asia's economies are bracing for a new challenge as oil prices surpassed the US$100 mark, reigniting concerns over inflation and fiscal deficits. The region's heavy reliance on imported crude, particularly through the Strait of Hormuz, leaves it vulnerable to geopolitical tensions. Japan, South Korea, and India, among others, face higher fuel subsidies and production costs, while lower-income countries like Indonesia and Thailand struggle with eroded household incomes.

Policymakers confront a limited window to cushion the impact, with inflation and fiscal space already constrained. Wee Khoon Chong, a market strategist, warns that surging oil prices bring inflation and fiscal concerns to the forefront. Madhavi Arora, an economist, predicts a "double whammy" if the crisis persists, compromising growth and worsening inflation.

Energy costs have spilled over to other sectors, with liquefied natural gas prices hitting their highest levels since 2022. The region's benchmark is expected to rise as Europe and Asia compete for limited supplies. Inflation data expected soon will influence central banks' decisions on interest rates. Despite emergency measures, the "new normal" could involve a persistently impaired Strait of Hormuz, according to HSBC.