Inflation trends in Asia: implications for central banks

This paper shows that trend inflation estimation offers crucial insights for the analysis of inflation dynamics and long-term inflation expectations. Focusing on the 12 largest Asian economies, a sample comprising both advanced and emerging economies and different monetary policy regimes, we show that trend inflation analysis can help explain the different impact of the disinflationary shocks across countries. Among countries with inflation below target in recent years, in those with trend inflation low but constant (Australia, New Zealand) low inflation may be lasting, but temporary, while those in which trend inflation has declined (South Korea, Thailand) risk low inflation to become entrenched and a de-anchoring of expectations. Countries like India, Philippines and Indonesia instead experienced a moderation in inflation and lower trend inflation, while others (China, Taiwan, Hong Kong SAR, Malaysia) were impacted very mildly. That diverse international evidence offers important insights for central banks worldwide.