New Threat! Prices in Indonesia and Neighbouring Countries Predicted to Rise
AMRO predicts that the prices of goods and services in the ASEAN+3 region will increase as a result of the prolonged conflict in the Middle East. This has pushed inflation projections up to 1.8%, from a previous estimate of 1.4% for 2026. Meanwhile, economic growth is expected to remain at 4%, consistent with previous projections.
“Growth in ASEAN+3 remains resilient, supported by strong domestic demand and technology exports. However, early signs of pressure are beginning to emerge,” said AMRO Chief Economist, Dong He, in a press release on Tuesday (2/6/2026).
“Rising energy and transport costs are starting to drive inflation and add pressure to industrial supply chains. If the conflict continues, these pressures could expand and weigh on regional growth.”
The Middle East conflict has entered its fourth month, far longer than initial estimates that predicted a resolution within two months. Costs for energy, commodities, and logistics have surged and remain high, while the supply of petroleum products becomes increasingly tight.
Early signs of disruption are also appearing in the supply of industrial raw materials, including helium, sulphur, and fertilisers, although widespread market dislocation has been avoided so far.
Although economic growth in the first quarter was stronger than expected, the full impact of the Middle East conflict has not yet been fully felt. The rise in energy and industrial raw material costs, combined with ongoing uncertainty regarding trade tariffs, is expected to affect countries in the region differently. Energy-importing nations and economies dependent on affected raw materials are expected to face greater pressure.
The duration and severity of the Middle East conflict remain the most significant short-term risk to the region’s economic prospects. In a worst-case scenario, where average oil prices reach US$125 per barrel in 2026—compared to a baseline assumption of US$95 per barrel—and supply disruptions worsen, growth in ASEAN+3 could slow to 2.5%, while inflation could potentially rise to 3.5%.
Excluding the COVID-19 pandemic period, such conditions would represent the highest regional inflation rate in over a decade and the slowest economic growth since the Asian financial crisis.
“In such a situation, policy responses must remain agile and adaptive to follow the developments of the shocks occurring,” added He. “Short-term support needs to be targeted and temporary, while long-term efforts must focus on strengthening energy security, supply chain resilience, and regional integration.”