In addition to an oil shock, Asia is facing a new inflation threat as an impending El Niño brings dry weather and high temperatures to nations from India to New Zealand, raising food prices.
According to the most recent data, rising transportation, logistics, and utility costs caused inflation to spike to multiyear highs over much of Asia. The Philippines and Pakistan saw the largest increases, with inflation rising beyond 7% and near 11%, respectively.
As El Niño is predicted to bring hotter and drier weather later this year, those pressures may become even more intense. In rising Asian markets, food accounts for between 40 and 50 percent of consumer price baskets, making consumers susceptible to price shocks and a decline in real earnings.According to Adam Ahmad Samdin of Oxford Economics, "food inflation in Asia is set to rise in 2026." "Overall food inflation risks are likely to remain elevated over the coming quarters due to the combination of geopolitical risks, fertiliser market disruptions, and climate uncertainty."
Samdin adds that if governments adopt export limits to safeguard domestic food supplies, as they did in 2022 and 2023 following Russia's full-scale invasion of Ukraine and bad weather in some nations, those threats might be exacerbated.
Economists caution that the recent spike in fertiliser costs brought on by the Middle East crisis will take time to flow into food prices, thus upward pressure on food prices will probably only become more apparent in the second half of the year.In a report about Southeast Asia, Bank of America analysts led by Rahul Bajoria said, "All else equal, if weather conditions deteriorate as projected, the second half of 2026 may see bigger inflationary pressures."
An index of 10-year yields from eight emerging Asian nations has increased by more than 80 basis points since the beginning of the Iran war, indicating that concerns have already been evident in regional bond markets.
The Asian Development Bank increased its regional CPI projection for this year to 5.2% from 3.6%, while the International Monetary Fund anticipates inflation to increase by up to four percentage points by the following year.Due to its heavy reliance on fuel and food imports, the Philippines is one of the most susceptible. Even before El Niño started, last month's inflation was far higher than the central bank's 3% target and substantially worse than economists had predicted. Outside of the epidemic, weak consumer spending caused economic growth to fall to its lowest rate in almost ten years, according to data released on Thursday.
The Bangko Sentral ng Pilipinas declared this week that it is prepared to take action, but experts warn that in order to keep up with inflation, it could be necessary to raise interest rates off-cycle and excessively, even if doing so would cause the economy to stop.

A greater El Nino dry spell could cause activity to slow down in Indonesia, where economic growth accelerated to a three-year high in the first quarter.
At the same time, El Nino-related decreased hydropower production in China, Vietnam, and India may require a higher reliance on coal and natural gas, raising electricity prices.
The Reserve Bank of India has cautioned that a weaker monsoon, which is essential for the nation's agricultural output, might affect crop harvests and raise food prices in rising Asia. Economists forecast that inflation would surpass the RBI's 4.6% estimate and rise above 5% in the fiscal year that begins on April 1.Additionally, hot weather may drive households to turn up the air conditioner and farmers to utilise more diesel-powered irrigation, which would increase expenses.
Citigroup Inc. anticipates that the RBI will stay on hold and has lowered its growth prediction for India from 7.1% to 6.6% for 2027. However, DBS Bank Ltd. economist Radhika Rao warns that if El Nino interferes with this year's monsoon, there may be a "double whammy" for inflation.
Pakistan is also at risk, as the country's central bank suddenly raised interest rates in April to control inflation that had risen to double digits and was predicted to remain high.

In contrast, the impact for Asia's wealthier nations is probably going to be relatively minimal because food and energy shocks are diluted by more diversified, services-heavy CPI baskets, with insurance prices only serving as a smaller, secondary channel.
It will be more difficult to ignore the impacts, though. For the time being, moderate inflation is anticipated in Singapore, which takes pride in its robust AI-driven economic growth.
According to Bloomberg Economics, a recent spike in food prices in Japan is making inflation "more sticky," with rice, a staple grain, remaining up 6.8% in March despite declining from the previous month. It noted that even before El Nino risks materialise, the Bank of Japan may decide to raise rates in June due to the higher pricing impulse.

According to Brian Quartarolo, chief investment officer at Anahata Capital Management, the central bank in neighbouring South Korea is likely "behind the curve" on monetary policy as inflation concerns increase in the nation. South Korea has maintained its benchmark rate at 2.5% since July of last year.