ADB warns Asia faces sustained inflation pressure into 2027

The Asian Development Bank (ADB) predicts persistent inflation pressures in the developing Asia-Pacific region through 2027. Inflation is forecasted to reach 4.2% this year and ease to 3.5% next year, both figures significantly above the 3% inflation rate observed in 2025.

The ADB attributes the inflation rise to a combination of factors. Tensions in the Middle East and Europe, combined with an intense El Nino weather pattern, are straining global markets. The escalation of conflict in Iran and its spread to Yemen have disrupted the supply of crude and refined petroleum products. Meanwhile, Russia's ongoing war on Ukraine has caused a setback in grain shipments.

Abnormal weather conditions stemming from El Nino are having a direct impact on harvests from India to Thailand. This is not only reducing agricultural output but also decreasing hydropower generation and even causing restrictions in key waterways such as the Panama Canal.

ADB Chief Economist Albert Park expressed concern, stating that the risks for the region remain predominantly unfavorable. He warned that further conflict escalation or a more severe El Nino could exacerbate inflation and negatively impact economic growth.

The ADB anticipates global economic growth slowing to 5% in 2026 from 5.5% in 2025. Oil prices have been revised upwards, with forecasts of US$90 per barrel for this year and US$78 per barrel for next year.

While the ADB notes that extensive subsidies have mitigated the inflationary effects for consumers this year, persistently high energy prices are starting to permeate economic systems. The passing effect is anticipated to be most significant in countries where food expenditure is a large part of the consumer basket, particularly in South Asia.

The report suggests that several economies in the region, including Bangladesh, India, Indonesia, Pakistan, the Philippines, and Vietnam, could benefit from further monetary tightening if inflation persists. The ADB suggests that once inflation eases, policymakers might consider rate cuts by 2027.

However, the ADB indicates that policy rates are expected to gradually move towards levels seen before the escalation of the Middle East conflict. The pace and extent of easing will depend on the evolution of inflation, growth, and external risks.