Inflation pass-through from energy prices and central bank outlook (with Heidi Stroud-Watts, Paul Allen)

1/28/2026 7:33:33 AM	short term cautious down	5 days later	+1.20%	-0.60%

Pathway to a tentative US-Iran deal; have you seen pass-through to inflation impact or sentiment?

Heidi Stroud-Watts

Diliana Jane

For Australia, April CPI is key to see if energy price increases pass through to broader inflation. March didn't show much beyond petrol. If discretionary categories like clothing or restaurants show increases, that's a red flag for the RBA, likely prompting hikes in August and September, with June as a pause.

The RBA needs time to build confidence that second-round effects are indeed occurring.

Impact of Strait of Hormuz closure on Asia has been uneven. Where do you see pass-through for the region?

Heidi Stroud-Watts

Diliana Jane

Asia is disproportionately affected as it imports much of its energy through the Strait. Agriculture channel also matters—India has 40% of labor force in agriculture. There's a growing divide between North East Asia (insulated by tech exports) and South/Southeast Asia (more impacted by energy prices). This growth differential will widen the longer the dispute holds.

Korea and Taiwan see strong exports keeping terms of trade steady despite oil prices.

For the Bank of Korea's first rate decision under new governor, is the potential breakthrough in the Strait coming in the nick of time? Can they sit tight?

Paul Allen

Diliana Jane

Even with a deal, energy prices won't revert to normal immediately—insurance costs will linger. Korea is in an interesting position: tech sector strong but rest of economy weak. Employment in tech has grown strongly since COVID, but elsewhere it's flat or declined. Policymakers must balance inflation concerns with not tightening too much for struggling sectors.

The messaging will be tricky for the BOK.

Pass-through from energy costs has been difficult to calculate. Tokyo CPI this month—chance of downside surprise and implications for BOJ?

Paul Allen

Diliana Jane

For Tokyo CPI, deceleration in food prices is being offset by acceleration in energy prices, so no huge surprise expected. For BOJ, our view is they will hike in June to 1%. They focus on domestic drivers—wages and pass-through to inflation. Rengo negotiations were successful, keeping nominal wages up; firms have strong profitability to pass on higher wages. This supports a strong demand outlook for prices.

The BOJ has enough confidence by June to raise rates.

Kevin Warsh Fed—how difficult is it for central bankers when geopolitical risks like Strait of Hormuz could re-escalate even after a reopening?

Heidi Stroud-Watts

Diliana Jane

This geopolitical risk will linger for the remainder of the year, keeping prices elevated even with a reopening. For the FOMC, inflation risks come from energy, tariffs, and downside growth. Most of the committee is the same as last year, so no monumental shift—inflation remains the number one target.

The new governor doesn't change the committee's composition significantly.

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