ves there are reasons to believe that price increases will be more subdued there this year than in the Americas, Europe, or Australia. Good news for consumers is not necessarily good news for retailers though, who are caught in a squeeze between rising supply costs and a demand recovery that hasn’t gathered enough momentum. They will not have an easy time passing on their increased costs to shoppers. The International Monetary Fund forecasts consumer prices to increase, on average, by just 2.2 per cent this year, across 13 Asian countries, ranging from a low of 0.4 per cent in Japan to a high of 4.9 per cent in India. These are remarkably low numbers and the IMF may well upgrade these forecasts in due course, but even so the outlook for Asia isn’t as bad as one might have feared. Behind the optimism So why will Asia get off so lightly? Supply disruptions in developing countries in Asia have been, for the most part, less severe than in the US and Europe: delivery times have been stretched, sure, but not drastically. Priyanka Kishore, head of India and Southeast Asia, Oxford Economics in Singapore, notes that although producer prices are spiking in Asia, the pass-through to consumers is much weaker, partly because “emerging Asian economies haven’t received the kind of policy support, especially fiscal, that advanced Western economies have”. In other words, retailers just won’t have the pricing power until consumer demand strengthens a lot more than it is now.   Still, things could get worse on the supply side. Workforces in the region are stretched razor-thin, with so many people sick because of Omicron that producers are having to get used to a material fraction of their labour forces being out of action at any given time. Omicron is not the only culprit behind labour shortages. Successive waves of lockdowns and other mobility restrictions resulted in factory closures and layoffs, and persistent chopping and changing of restrictions by governments created so much uncertainty among would-be employees that many have been hesitant to go back to work. This is particularly the case in countries like Vietnam and Thailand, where much of the urban industrial workforce comes from the countryside. Many packed up and left for home and haven’t come back. Anecdotally, even some of those who have returned to the cities are hunkering down, watching and waiting for things to become more predictable before committing themselves to work. Shipping woes On top of the people shortage is a dramatic escalation in shipping costs. The same disruptions that caused labour shortages in Asia – lockdowns and border closures – also caused mayhem on international trade routes. Shipping containers that carry almost 2 billion tonnes of fresh food, appliances and other products across the high seas annually were diverted and left stranded in the wrong places. Labour shortages in ports prevented them from getting unloaded and loaded. Not only is it difficult to find empty containers, it’s difficult to find ships to carry them. In the last quarter of 2021, shipping costs from the Ningbo-Zhoushan on the central China coast to ports in Indochina more than doubled. One Vietnamese apparel exporter says logistics and shipping costs have risen five- or six-fold but deliveries have had to be made according to earlier contracts, so it wasn’t possible to pass along the higher costs. Fresh food is a bigger problem than general merchandise, since packaging prices have escalated by 30-40 per cent and extended delivery times mean the food is sitting around in warehouses for longer than it should be, causing some of it not to get to the store before expiration. Shipping companies have mobilised their fleets again to relieve the shortage, but many prioritise imports into the huge US market, so competition for ships on the shorter intra-Asia routes is intense. Unfortunately for manufacturers, they will find it very difficult to pass along the full increase in costs to retailers, and the latter will struggle to pass along any cost increases to consumers. Demand is still stuttering; it is still early days in the economic recovery, particularly in more tourism-dependent countries that have been slow to ease travel restrictions. Once demand strengthens, upward pressure on prices will be stronger. In fact, the Thai Commerce Ministry expects consumer prices to rise by 3.0 per cent this year, the highest level in a decade. In response to the pricing pressures – or to some extent in anticipation of them – the government is becoming activist in the market. It is setting up more than 3,000 locations inside department stores, petrol stations, and other retail locations to sell ‘affordable’ products. The Commerce Ministry has asked retailers in key fresh-food segments to keep prices steady, and hasn’t been shy about policing them to ensure compliance. Elsewhere in Asia, exporting firms that haven’t been able to sell the same volume of goods as before, often due to supply chain bottlenecks, have sold them in local markets, helping to keep a lid on domestic prices.  Pandemic and reactions still ‘X’ factors Despite these factors, prices across Asia are bound to rise in the first half of 2022. The Bank of Korea concedes that the supply-chain problems, high energy prices, and strengthening consumption will combine to cause inflation to run higher than its target for some time. (Korea is already into an interest rate tightening cycle.) Iron-fisted Covid-19 control policies in China and tightened restrictions in other parts of Asia because of Omicron could result in changes to the outlook, with factory closures, mobility restrictions, and labour shortages all potentially contributing to supply disruptions. As Oxford Economics’ Kishore notes, major risks to the generally benign Asian inflation outlook are “the ongoing Omicron spread and China’s zero-Covid policy. If that results in China-centred supply-chain disruptions, then Asia will feel the pain a lot more.” Meanwhile, noises are starting to come from governments in some countries in the region, such as Thailand, acknowledging that Omicron may not be as lethal as previous strains and that it is time to be moving toward a more ‘normalising’ policy mode. The idea of relaxing border quarantine rules and restrictions on the operations of service businesses is becoming more prominent, which will have a knock-on effect on demand and, inevitably, prices. That would be good news at last for the region’s long-suffering retailers.