SINGAPORE (Reuters) - Inflation hit a 26-year peak in Singapore and a
13-month high in Malaysia as governments across Asia grapple with the
problem of containing surging food and energy costs without choking
off economic growth.
Australian inflation accelerated to its fastest pace in 17 years,
Indonesia and Vietnam raised their inflation forecasts, and the
Philippine central bank said it would look at raising rates if
commodity price rises began feeding into wages and other costs.
Authorities across the region, where economies are powered by exports,
are reluctant to raise rates in the teeth of a financial crisis that
has taken the United States to the brink of recession, if it isn't in
recession already.
The International Monetary Fund and the Asian Development Bank urged
governments this week to use direct fiscal measures to cushion the
impact of rising prices that stirred protests from the Philippines to
Bangladesh.
Markets are betting on more drastic action, and currencies rose across
the region on Wednesday, partly in anticipation that authorities would
either turn to rate hikes or exchange rate appreciation to contain
inflation being driven by record price rises in essentials like rice
and oil.
The Malaysian ringgit hit an 11-year high and the Australian dollar a
24-year peak. The Singapore dollar , the central bank's main monetary
policy tool, hit a record high.
While economic growth in Asia is expected to slow this year as a
struggling U.S. economy drags on the region's exports, rising consumer
prices have made it difficult for central banks to ease monetary
policy.
Prices in Singapore rose in March by 6.7 percent from a year earlier,
their biggest annual gain since 1982.
The core rate of annual inflation in Australia rose in the first
quarter by a larger-than-expected 4.25 percent over a year earlier as
the cost of eating, driving and renting all rose.
SUPPLY SHOCKS
Malaysia's consumer prices climbed in March by a relatively sedate 2.8
percent from a year earlier, but that was still the highest level in
well over a decade, although economists saw no reason for a rate
hike.
"Monetary policy can't help much when inflation is driven by supply
shocks," said Prakash Sakpal, a regional economist at ING Financial
Markets in Singapore.
"Central banks hiking interest rates is basically not an effective
option. It basically leaves them with the exchange rate, which
Singapore is doing," Sakpal said.
Singapore's central bank tightened monetary policy earlier this month
by allowing the Singapore dollar, its main policy tool, to rise
further.
The Reserve Bank of Australia (RBA), the central bank, raised rates in
both February and March to a 12-year high of 7.25 percent. But
analysts said that may not be enough to contain the country's
inflation.
"The RBA will be taking comfort from the rapid slowdown in demand seen
in the first quarter, and that should allow them to skip another
tightening for the time being," said Brian Radican, a senior economist
at Macquarie bank.
"But if inflation doesn't slow by the third quarter, things could get
nasty again," he said. "The Reserve Bank has a real struggle on its
hands."
Analysts said only countries such as Singapore, China and South Korea,
which have budget surpluses, can afford to subsidise the high costs of
food or let their currencies rise, leaving many Asian governments that
are running budget deficits in a bind.
"Countries such as Indonesia, India, Malaysia and the Philippines,
which lack balance of payments support, will be more constrained,"
Sakpal said.
The Philippine central bank said on Wednesday it would review its
monetary policy stance, and possibly raise rates, if inflationary
pressures spread to other parts of the economy.
Vietnam's planning and investment minister, Vo Hong Phuc, said the
government expected it would be difficult to contain inflation, which
is running at its highest level in more than 12 years at close to 20
percent, as it had wished.
While, in Indonesia, the head of the country's statistics bureau said
April inflation would be higher than March, which was already an 18-
month high.
China, where consumer price inflation is running near 12-year highs,
has allowed the Chinese yuan to keep strengthening to help contain
inflation.
The Asian Development Bank said on Tuesday Asian governments should
use direct fiscal measures to tackle inflation rather than monetary
policy moves because the poor need to receive help immediately.
India, where inflation hit a three-year high at the end of March, is
considering more export curbs and fiscal steps to put a lid on soaring
prices that threaten to hurt the government at the ballot box.
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