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20 May 2026

Econ Digest

To what extent has inflation in ASEAN countries accelerated over the three months since the Middle East conflict erupted?

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The prolonged conflict in the Middle East over the past nearly three months is beginning to have a greater impact on ASEAN economies, particularly through continuously rising “energy prices," which are starting to pass through to the cost of living, inflation, and business operating costs.
The latest data shows that Laos PDR has been the most affected country, with its headline inflation (CPI) in April 2026 accelerating into double digits for the first time in 12 months, reaching 10.2% YoY-the highest among ASEAN countries. Compared to January 2026, before the Middle East conflict erupted, inflation in Laos PDR also increased the most. Meanwhile, inflation in the Philippines, Cambodia, and Vietnam increased to 7.2%, 5.8%, and 5.5%, respectively, reflecting rising pressures from higher energy costs, electricity and water bills, and transportation expenses.
Inflation levels vary across countries, reflecting differing energy subsidy policies. Countries that continue to cap oil prices and maintain high levels of energy subsidies can better delay the pass-through of costs to inflation, while those that allow energy prices to move in line with the market face faster increases in the cost of living.
Regarding utilities, the Philippines declared an energy emergency in March 2026 after electricity costs rose sharply, leading to multiple increases in electricity tariffs and resulting in the highest rise in the utility price index in the region, which increased by 14.8% in April 2026 as compared to January 2026. Meanwhile, Lao PDR has been gradually increasing electricity rates, while Malaysia​ continues to subsidize electricity costs but has begun gradually raising water rates due to fiscal constraints.
Changes in retail diesel prices at gas stations clearly reflect energy subsidy measures. Indonesia continues to provide the highest diesel subsidy at IDR19,700 per liter (equivalent to THB36.3 per liter), resulting in biosolar diesel being sold at only IDR6,800 per liter as compared to the unsubsidized price of IDR26,500 per liter. Meanwhile, Thailand still subsidizes diesel prices through its energy structure by around THB9.3 per liter (average in April 2026), keeping Thailand's inflation lower than that of many countries in the region, although inflation has started to turn positive at 2.9% after the gradual pass-through of energy prices and transportation costs.
In contrast, the Philippines and Lao PDR, which rely heavily on energy imports, are more affected by global energy prices. The Philippines allows energy prices to move in line with market mechanisms, while Lao PDR intervenes in fuel prices and partially supports costs. However, fiscal constraints and currency depreciation have led to retail diesel prices at gas stations in Laos rising by nearly 150% since the beginning of the year. As for Malaysia, although fuel subsidies remain in place, the government has begun gradually reducing subsidies and limiting them more toward targeted groups.
KResearch views that ASEAN countries are affected by high global energy prices to varying degrees, depending on their reliance on energy imports and government energy subsidy measures. Countries with high dependence on energy imports and weak fiscal positions will face greater pressure on inflation and the cost of living than others. In addition, the return of accelerating inflation may lead central banks in several countries to maintain or raise policy interest rates.
Looking ahead, if the conflict in the Middle East continues and energy prices rise further, ASEAN countries may face increasing inflationary pressures in the second half of 2026, especially those heavily reliant on energy imports. Meanwhile, countries that implement energy subsidy policies may be able to ease short-term pressures on living costs and inflation, but at the expense of higher fiscal burdens in the longer term.

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Econ Digest

inflation