Asia PMIs Still Showing Cost Pressures Despite Peace Deal Relief

By Fabiana Negrin Ochoa and Kimberley Kao

The U.S.-Iran peace deal spells relief for Asian businesses being squeezed by the war-induced surge in costs, but new data shows the pressure is still on.

S&P Global's latest flash purchasing managers indexes revealed that inflation remains strong even though energy prices have pulled back.

According to the June surveys, businesses in Japan, Australia and India remain concerned about the impact of disruptions stemming from the Middle East conflict.

Oil has fallen from the peaks reached during the height of the war and more tankers are starting to travel through the Strait of Hormuz, but it will take time to restore balance to a market shaken by significant damage to Middle Eastern infrastructure during the fighting.

"The estimate is that for every one day of Hormuz outage, the global energy supply chain needs three days to normalize," said Albert Chu, portfolio manager at Man Group.

He expects near-to-mid-term physical shortages of oil and warns that a dire situation could develop in the global natural gas market too, noting that some Asia-bound liquefied natural gas is being diverted to Europe.

Mixed signals from the U.S. and Iran on the peace process are also keeping businesses on edge.

In Australia, there remains a great deal of market uncertainty, which caused new orders to fall again in June and business confidence to drop to among the lowest on record, said Andrew Harker, economics director at S&P Global Market Intelligence.

New export orders also decreased anew, and the headline seasonally adjusted Composite Output Index stayed in contraction territory at 49.8.

Severe supply-chain interruptions are still affecting manufacturers in Australia, Harker said, though he noted that inflationary pressures showed signs of softening, despite remaining pronounced.

There was no such easing in Japan, where the rate of cost inflation hit a near four-year high in June.

And despite the headline PMI number improving to 52.5 from 51.1--indicating a 15th straight month of expansion in overall private-sector activity--momentum may be more fragile than meets the eye.

"It is important to note that the current period of growth is partly being driven by stock-piling efforts amid the war in the Middle East, and these efforts are likely to fade in the months ahead as warehouses fill and cost pressures bite," said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.

In India, inventory-building has already lost steam, according to the HSBC flash PMI compiled by S&P.

While the composite output index stayed firmly in expansion territory at 57.4 in June, the pace of growth weakened. The slowdown was widespread across manufacturing and services, with companies saying that cost pressures and softer demand curbed activity.

Companies continued to be confident that output will rise over the coming 12 months but the degree of optimism was shaky, with sentiment among manufacturers dropping to the lowest in close to four years.

How demand and inflation trends develop as the Middle East peace process unfolds will be front of mind for central banks.

Many in Asia, including the Bank of Japan and Reserve Bank of Australia, have already tightened policy settings to curb cost growth. Further evidence that companies are passing higher costs on to consumers to protect margins could stoke expectations for a more hawkish quarter ahead in the region.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com and Kimberley Kao at kimberley.kao@wsj.com

(END) Dow Jones Newswires

June 23, 2026 03:18 ET (07:18 GMT)