Asia’s Inflation Cools as Western Economies Battle Rising Costs

Key Takeaways

• Inflation in major Asian economies is cooling, with rates falling below 2%.
• In contrast, the U.S. and EU continue to struggle with inflation above central bank targets.
• The OECD warns that high inflation remains a persistent global concern.

After a year of economic turbulence, inflation trends across the world’s leading economies are sending mixed signals—offering relief in some regions while fueling concerns in others.

In Asia, inflation appears to be easing, with China, Japan, and Singapore reporting a slowdown in price increases.

Meanwhile, Europe and the U.S. remain wary of inflationary risks, with central banks cautiously weighing their next moves.

Asian Economies See Inflation Cooling

China’s consumer prices fell at the sharpest pace in over a year, underscoring persistent deflationary pressures in the world’s second-largest economy.

The consumer price index declined 0.7% in February from a year earlier, reversing January’s 0.5% gain, according to data released by the National Bureau of Statistics.

The drop was steeper than the 0.5% contraction economists had expected and was driven by falling prices in food, tobacco, and alcohol.

Japan’s core CPI slowed from 3.2% in January but remained above the central bank’s 2% target for the 23rd consecutive month.

Soaring food prices have prompted government intervention, including subsidies and the release of stockpiled rice.

Prices for staple foods like rice and cabbage have surged by 81% and 130% year-on-year, respectively, leading local media to dub the crisis a “cabbage shock.”

Singapore’s core inflation fell to 0.6% in February, the lowest in nearly four years, marking the fifth consecutive month of decline.

Headline inflation eased to 0.9% from 1.2% in January, driven by lower private transport costs and subdued price increases in other sectors.

The Monetary Authority of Singapore expects inflation to remain subdued in the months ahead.

Western Economies Struggle to Contain Inflation

In the eurozone , inflation eased slightly to 2.3% in February from 2.5% in January, while EU-wide inflation dipped to 2.7% from 2.8%.

Despite the moderation, European Central Bank (ECB) President Christine Lagarde cautioned against complacency, warning that energy price volatility and trade disruptions could reignite inflationary pressures.

The ECB implemented a 0.25 percentage point rate cut but signaled caution, indicating that further reductions may be off the table if inflation remains stubbornly high.

The ECB’s 2% target was briefly met last year but has since proven difficult to maintain.

A similar story is unfolding in the U.S., where inflation slowed to 2.8% in February from 3% in January, with core inflation dropping to a four-year low of 3.1%.

While the slowdown exceeded expectations, economists warn that new tariffs could drive up goods prices, complicating the Federal Reserve’s policy outlook.

Global Inflation Pressures Persist

Despite easing inflation in some regions, the OECD has flagged inflationary risks as a growing concern worldwide.

Services inflation remains particularly sticky, averaging 3.6% across OECD nations.

Inflation forecasts for 2025-26 have been revised upward, though a gradual decline is still expected as economic growth slows.

In G20 economies, headline inflation is projected to fall from 3.8% in 2025 to 3.2% in 2026, but core inflation is expected to remain above central bank targets in many countries.

Geopolitical uncertainties and trade policy shifts pose significant risks to these projections.

The OECD warns that an additional 10% rise in U.S. tariffs on imports could reduce global output by 0.3% over three years and push inflation up by 0.4% annually.

If financial markets react with heightened risk aversion, corporate and household spending could decline further, compounding economic headwinds worldwide.