Asia resists skyrocketing inflation seen in West, but for how long?
By Paloma Almoguera
Singapore, Jul 2 (EFE).- While the leaders of the world’s main central banks warn that the era of moderate inflation and low interest rates has come to an end, China and other Asian countries seem to be weathering the storm, although for how much longer remains to be seen.
Bank of England Governor Andrew Bailey vowed to “do everything we can” to control inflation on Wednesday during a meeting with the leaders of the United States Federal Reserve (Fed) and the European Central Bank.
Driven by the energy and food sectors and derived, above all, from the disruption in supplies caused by the war in Ukraine and the effects of the Covid-19 pandemic, inflation has skyrocketed in much of the world.
In May, US inflation rose to 8.6 percent, slightly above the European Union figure (8.1 percent), and behind the United Kingdom (9.1 percent).
But on the other side of the world, the numbers are less alarming.
CHINA’S ZERO-COVID POLICY
In China, Vietnam, Indonesia, Japan and Malaysia, as well as in Taiwan, Hong Kong and Macau, inflation remains below 4 percent for various reasons, including a more gradual easing of pandemic measures than the West, with the extreme example of China, which continues to enforce lockdowns.
Beijing’s prevailing zero-Covid policy has weakened both the supply of goods and the demands of the population, some in lockdown.
The country continues to maintain its consumer price index (CPI) at low levels, and although during the current year the rate has risen to 1.5 percent, it remains below the official objective of 3 percent.
Experts point out that in recent times China has been “exporting” inflation owing to high industrial costs and logistical bottlenecks due in part to the pandemic, while at the domestic level, the low CPI still leaves room for additional easing policies to boost the economy.
Alicia García Herrero, chief economist for Asia-Pacific at Natixis, tells EFE that, without “upward pressure on prices” and with “key tariffs regulated, such as electricity, inflation is very controlled,” adding that the situation will now depend on the stimulus programs decided by Beijing.
GRADUAL EXIT FROM THE PANDEMIC
Even across the rest of Asia, the gradual removal of Covid-19 restrictions has been a price leveler, with movement and travel only just starting, as Brian Tan, an expert in emerging economies at Barclays in Singapore, explained in a press conference.
As many countries continue to open up and quarantine requirements have been almost eliminated across Southeast Asia in recent months, it stands to reason that the situation will change, since no country is immune to the rising cost of fuel and food, with the region, in general, an importer of both.
“I think the central banks will look at the global situation and will respond to it. Maybe not as aggressively as the FED, but we will see some rate hikes from central banks in the region,” Tan predicts.
Malaysia already raised rates to 2 percent in May, from the 1.75 percent (an all-time low) in place since July 2020. Indonesia will do the same in the next three months or so, Tan thinks.
The two countries had tried to control prices with less orthodox measures, such as banning exports – palm oil temporarily in the case of Indonesia and chicken in Malaysia – in a decision that has affected the shopping baskets of neighboring Singapore, which imports 90 percent of its food.
The Asian city-state is one of the exceptions in Asia, as it has been facing the highest inflation rates in the last decade (5.6 percent year-on-year in May), which has caused the island’s central bank to tighten its monetary policy three times since October, without ruling out further steps.
In Singapore, the Philippines and Thailand, “it will be more difficult to [check] the increase of prices” due to demand pressure, says the Barclays economist. The Philippines already raised rates in May, while Thailand has hinted that it will also join the bullish tide.