Economic Analysis - BMI Vs Consensus: Well Above Consensus On Japan, India, Vietnam Inflation - NOV 2017


We broadly expect inflationary pressures to rise in Asia over the coming quarters, and we highlight that our 2018 forecasts for Japan, India, and Vietnam are well above consensus expectations.

Japan: Our 2018 average inflation forecast of 2.0% is significantly higher than consensus expectations of 0.8% and also marks an aggressive increase from 0.4% y-o-y in July. In our view, the Bank of Japan (BoJ)'s expansionary monetary policy, increased government spending relative to GDP, coupled with a rise in oil prices are factors that will likely drive inflation higher over the coming quarters.

India: We believe that inflation in India has bottomed out in June 2017 (1.5% y-o-y), and expect price pressures to gradually rise over the coming months. We are above consensus with respect to our forecasts, expecting headline consumer price inflation (CPI) to average 4.5% in FY2018/19 (April-March) from 3.5% in FY2017/18 and consensus expectations of 3.5%. Our view is predicated on a normalisation in food prices (which account for more than half of the CPI basket), higher oil prices, and a weaker Indian rupee. Additionally, there are also upside risks to India's medium-term inflation outlook, stemming from the country's still poor fiscal position due to a lack of fiscal prudence by state governments.

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