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Inflation
may rise beyond forecast mid-year peak
Melissa
Chia
Reuters
8
Mar
08
http://services.inquirer.net/mobile/08/03/06/html_output/xmlhtml...
As oil prices
continue to rise despite talk of a slump in global growth and
bottlenecks persist in food supplies, economists are questioning
the view that Asia's soaring inflation rates will moderate by
mid-year.
Annual inflation had been expected to peak
around the middle of 2008 after a steep rise in oil and food
prices last year started to fall out of the index calculation,
said Mirza Baig, a strategist at Deutsche Bank in
Singapore.
"Assuming, of course, that oil prices and
international prices for wheat, soy bean, etc. stabilise here,"
he said. "Except that they don't seem to be stabilizing
right now."
The prospect of recession in the United
States has barely stopped the run-up in oil prices, which are at
record levels above $100 a barrel and still rising. Gold, a
traditional hedge against inflation, has risen to within reach of
$1,000 an ounce.
Across Asia, there is no let-up in rents
or food prices, which are feeding into general inflation - at a
26-year high in Singapore, an 11-year high in China and a 12-year
high in Vietnam - and pushing up wages.
Among soft
commodities, wheat prices are at record highs after a 120 percent
surge in 14 months.
Some analysts argue that the spike in
prices is seasonal, that food supplies will improve in the summer
as China's disruptive winter storms abate and oil demand in the
northern hemisphere weakens when heating becomes
unnecessary.
However, brokerage Nomura thinks these
analysts have underestimated the impact of China's extreme
weather and the country's dependence on imported commodities,
which, it argues, will keep prices elevated for far longer than
expected.
Tomo Kinoshita, an economist at Nomura, said
exported inflation from China's double-digit expansion would add
to pressures, particularly in 2009, as rises in wages and
materials such as steel generate higher prices in the rest of
Asia.
Another inflationary factor that will not simply
disappear with winter is a structural shift stemming from the
growing middle class in Asia, especially China and India, which
will spur demand for goods.
Pork, Diesel
In
China, the price of pork in January was 58.8 percent higher than
a year earlier and was the main factor behind a rise in food
prices of 18.2 percent. In turn, food was responsible for
one-third of the overall rise in consumer price inflation, which
hit an 11-year high of 7.1 percent.
In Vietnam, housing
and construction costs climbed by 16.4 percent in February from a
year before, while diesel and kerosene rose by 36.3 percent.
Overall inflation was at a 12-year peak of 15.7 percent, the
highest in Asia.
In Indonesia, where crude oil accounts
for more than 10 percent of the country's imports, the central
bank raised its inflation forecast for this year to between 6.0
and 6.5 percent after annual inflation in January spiked to 7.36
percent.
The upshot for policy is that monetary conditions
may have to be tightened, or at least not loosened, and
currencies allowed to appreciate, even though global demand for
goods from the export-reliant region may be waning.
The
optimists still think the price winds will blow in the other
direction in mid-2008: the drop in demand stemming from a
downturn in the United States, plus a drop in oil and food costs,
will bring inflation down.
"The outlook for weaker
global demand should help to ease these pressures and we see it
happening as soon as the second quarter, with oil potentially
going as low as $80," said David Mann, a strategist at
Standard Chartered Bank in Hong Kong.
But some analysts
say core inflation, which excludes food and oil prices, could be
pushed up if demand in Asian economies holds up and the prices of
non-food items such as production materials and property continue
to rise, dragging wages up.
"We expect Asian
consumption to remain robust this year, especially for rice,
dairy (products), wheat, oil and iron ore," said Sean
Callow, a strategist at Westpac Banking.
He also expects
global demand for commodities, some of it speculative, to ensure
inflation in Asia remains well above the average of recent years
by year-end.
Mann acknowledged that in Vietnam, for
instance, inflation would remain relatively high in 2008 at 9.0
percent due to "very strong domestic demand, plus the
greater impact of energy prices there".
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