Asia to face sustained inflation pressure into 2027, ADB warns

Wars in Europe and the Middle East and a severe El Nino are amplifying price pressures across Asia, likely fanning inflation through next year and keeping central banks on guard, according to the Asian Development Bank.

The reescalation of fighting in Iran and the spread of conflict to Yemen have choked supplies of crude and refined products, while Russia’s war on Ukraine has disrupted grain shipments, the ADB said in its latest outlook released on Wednesday. Abnormal weather patterns due to El Nino are already threatening harvests from India to Thailand, as well as reducing hydropower generation and even restricting traffic in waterways like the Panama Canal.

“Risks remain tilted to the downside,” ADB chief economist Albert Park said in the report. “Further escalation of conflicts or worse than expected El Nino impacts could dent growth and push inflation higher.”

The ADB forecasts inflation for the developing Asia-Pacific region at 4.2% this year and 3.5% next year, both well above the 3% recorded in 2025. It expects economic growth to slow to 5% in 2026, from 5.5%, and raised its oil-price forecasts to $90 and $78 a barrel for this year and next.

While broad subsidies have helped cushion the blow for consumers this year, persistently high energy prices have started working their way through economies. That pass-through is likely to be strongest in countries where food weighs heavily in the consumption basket, such as in South Asia, the ADB said.

Several economies have scope for further monetary tightening this year if inflation persists, including Bangladesh, India, Indonesia, Pakistan, the Philippines and Vietnam, the bank said. Once inflation recedes, policymakers may start weighing rate cuts in 2027, it said.

“Overall, policy rates are expected to move gradually toward levels observed before the escalation of the Middle East conflict, though the pace and extent of easing will depend on the evolution of inflation, growth, and external risks,” the ADB said.