Monday, November 12, 2007

Inflation-"Asia Economy: Feeling the Heat"


Inflation has been rising across Asia in recent months, with rates in several countries hitting highs not seen since the 1990s. The trend, driven partly by global commodity-price movements, will raise concerns about overheating in the region, and could increase the pressure for Asian currencies to appreciate.

Back to the 1990s?

Asian governments can congratulate themselves on achieving an enviable run of economic growth in the last few years. Moreover, the region is well placed to withstand the negative effects of the tightening of global credit markets, largely because domestic liquidity is ample and credit growth to date, while rapid, has not been excessive. Nevertheless, there are growing concerns that in parts of Asia price rises are beginning to accelerate.

The biggest inflationary concerns surround China, where in the course of 2007 year-on-year consumer price inflation has surged from 2.2% in January to a peak of 6.5% in August. This was the highest level seen since December 1996. Although the figure eased slightly to 6.2% in September, there are concerns that it may not come down again quickly--the government's recent move to raise state-mandated fuel prices and anecdotal reports of resurgent food-price pressures could signal even stronger inflation on the horizon for the rest of the year....MORE