Jhe world is now facing a synchronized inflation spike as food and energy prices rise in Asia, a change from just a few months ago when the region seemed to be avoiding the price fever that was gripping in the United States and parts of Europe.
Inflation figures in the region – China, India, Indonesia, Philippines, Thailand and South Korea – have recently risen more than expected, while New Zealand on Wednesday raised its over-22 rates due to the price concerns. And accelerating manufacturing costs suggest the worst is yet to come.
Markets are beginning to price in rising inflation expectations and more aggressive central bank action across much of Asia. This is beginning to mirror trends seen in the United States, where Tuesday’s data showed consumer prices last month rose the most since late 1981, putting further pressure on the Federal Reserve to react.
Regional government bond yields rose throughout the year, led by South Korea, with the emerging Asia total return index down 2.6%, its worst performance since 2013 This indicates that some central banks will raise their interest rates to slow inflation and support their currencies as capital leaves the region.
The turning point was Russia’s invasion of Ukraine, which caused an upheaval in commodity markets. This pushed up energy and fuel prices and threatened grain supplies in the world’s largest consuming region. Rising fertilizer and transport costs are also impacting record global food prices.
A sign displays fuel prices at a gas station in Gimpo, South Korea, April 3, 2022. South Korea has extended fuel tax cuts for another three months until July to contain the inflation.
SeongJoon Cho/Bloomberg via Getty Images
High commodity prices are expected to lift inflation in developing Asia by 1 percentage point to 3.7% this year, the Asian Development Bank said earlier this month. Although this is relatively moderate compared to rates in the United States, it is forcing policymakers to change direction and spooking some investors.
Net investment of $22.3 billion last month came out of emerging Asia excluding China, according to the Australia & New Zealand Banking Group, the biggest sell-off since March 2020.
India, the world’s second most populous nation, is feeling the pinch of food and energy. In his vegetable stall in a Mumbai suburb, Dnyaneshwar Uttam Sante’s problems were visible in the plastic bag of mixed vegetables he had just packed for a customer: he charged 450 rupees, or nearly $6, about 80% more than a few. weeks ago.
“I am helpless,” Sante said, just as a customer mentioned the “unbelievable” cost of a cooking gas cylinder, which had risen by almost 30% to Rs 960.
Read more: Here’s what costs the most and how to plan for it
The reaction of the Reserve Bank of India is emblematic of the growing pressures from Asia. Governor Shaktikanta Das last week cited a “tectonic shift” in the macroeconomic and inflationary outlook since late February – essentially, Russia’s invasion of Ukraine – that “has upended the earlier narrative” of price pressures quieter this year.
“In our order of priorities, we have now put inflation above growth,” Das said.
In China, producer prices rose 8.3% from a year earlier, down from 8.8% in February, but still above the median estimate of 8.1%. Consumer prices excluding fresh food in Japan, the Bank of Japan’s benchmark, rose 0.6% in February from a year earlier, the fastest pace in two years, driven by costs Energy.
South Korea’s and Singapore’s central banks are also meeting this week, with economists divided over prospects for another rate hike in Seoul while those in the city-state of Singapore are expected to tighten parameters to fight the coronavirus crisis. imported inflation, in particular energy.
Food poses the biggest inflation risk for Asian central banks, despite the region being a net exporter, according to HSBC Holdings Plc. Continued lockdowns in China to suppress Covid-19 are another potential source of inflation for logistics.
Additionally, further increases in consumer prices are likely as manufacturers’ input costs continue to climb.
Vendors are seen at a food market in Bangkok, Thailand March 30, 2022. Thailand’s central bank said on Wednesday the Southeast Asian country’s headline inflation will exceed this year’s target range on the rising energy and food prices
Rachen Sageamsak/Xinhua via Getty Images
While the correlation between factory prices and consumer costs is influenced by a range of factors, as some companies absorb the charges or as exchange rates soften the blow, analysts from ANZ and Nomura Holdings Inc. predict higher inflation.
“The gap between the PPI and the CPI is currently exceptionally large,” said ANZ economist Krystal Tan, referring to prices paid by producers and consumers. “That suggests to me that there are significant pricing pressures in the pipeline that will eventually trickle down to the CPI as growers begin to bear more of the higher input costs.”
One producer feeling the pressure is Kenneth Wong, who runs one of the world’s leading bra makers, with factories in China, Cambodia and Thailand. He saw input prices jump for the roughly 20 components needed for basic garments such as fabric, foam pads, metallic thread and plastic adjusters.
And prices continue to rise, according to Wong, who runs Top Form Bras, a Hong Kong-based company founded by his father.
Whereas under normal circumstances Wong would offer customers a price for a product that would hold up over its life cycle – as long as three years, for example – it now updates prices on an ongoing basis.
“Before, when I was buying things like rubber bands, thread, or bows, we didn’t even have to think about it,” Wong said. “But now you really have to deal with it.”
—With the help of Yantoultra Ngui, Suttinee Yuvejwattana, Anuchit Nguyen, Siegfrid Alegado, Andreo Calonzo, Grace Sihombing, Yoshiaki Nohara and Marcus Wong
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