As food and energy prices rise in Asia, the world is now facing a steady rise in inflation, a change from just a few months ago when the region emerged to avoid price fever in the United States and parts of Europe.
Inflation readings across the region – China, India, Indonesia, the Philippines, Thailand and South Korea – have risen more than forecast recently, with New Zealand hitting its highest rate in 22 years on Wednesday due to price concerns. And accelerating production costs indicates that the worst has not yet come.
Markets have begun to rise in anticipation of rising inflation and a more aggressive move by the central bank across much of Asia. This has begun to mirror the trend seen in the United States, where data on Tuesday showed that consumer prices rose the most in the last month to the end of 1981, putting new pressure on the US Federal Reserve to respond.
Led by South Korea, the yield on regional government bonds has risen this year, with the emerging Asia’s total return index falling 2.6%, its worst performance since 2013. This indicates an expectation that some central banks will raise interest rates to slow down inflation. As the capital leaves the region, their currencies rise.
The turning point was Russia’s aggression in Ukraine, which led to a boom in the commodity market. It raises energy and fuel prices and threatens grain supply in the world’s top consumer regions. Rising fertilizer and transportation costs also compounded global food prices.
The Asian Development Bank (ADB) said earlier this month that prices of advanced products in developing Asia were expected to rise to 3.7% this year, up one full percentage point. While this is relatively quiet compared to the rate in the US, it is forcing policymakers to shift focus and intimidating some investors.
According to the Australia and New Zealand Banking Group (ANZ), marking the largest sell-off since March 2020, a net গত 22.3 billion investment came from Asia last month, excluding China.
India, the world’s second most populous country, is experiencing food and energy shortages. At his vegetable stall in the suburbs of Mumbai, Gyaneshwar Uttam Sant’s problems were seen in a plastic bag of mixed vegetables that he had just packed for one customer: he was charging Rs 450 or about ড 6, which is about 80% more than anything else. Weeks ago.
“I’m helpless,” said Mr. Sante, as one customer shouted about the “incredible” price of a cooking gas cylinder, which rose almost 30% to Rs 960.
The RBI’s response is a sign of growing pressure in Asia Governor Shaktikant Das last week described a “tectonic shift” in macroeconomic and inflation outlook since the end of February – essentially Russia’s invasion of Ukraine – which “blew away the previous description” of calm price pressures this year.
“In line with our priorities, we are now keeping inflation on the rise,” Mr Das said.
In China, producer prices rose 8.3% year-on-year, down from 8.8% in February but still above the median estimate of 8.1%. Consumer prices in Japan, excluding fresh food, rose 0.6% in February from a year earlier, the benchmark of the Bank of Japan, the fastest pace in two years, driven by energy costs.
The central banks of South Korea and Singapore also met this week, with economists divided over the possibility of another rate hike in Seoul as Singapore’s city-states are expected to tighten settings to fight imported inflation, especially energy.
Despite the region being a net exporter, food poses the biggest inflation risk for Asia’s central banks, according to HSBC Holdings plc. Rolling lockdowns in China to curb coronavirus disease 2019 (COVID-19) is another potential source of inflation for juices.
What’s more, as consumer input costs continue to rise, consumer prices are likely to rise further.
Although the correlation between factory prices and consumer spending is influenced by a number of factors, as some companies absorb charges or soften exchange rate shocks, analysts at ANZ and Nomura Holdings, Inc. see further inflation.
“The gap between the PPI (Product Price Index) and the CPI (Consumer Price Index) is currently exceptionally large,” said Crystal Tan, an economist at ANZ, referring to prices paid by producers and consumers. “This suggests to me that there is significant price pressure in the pipeline that will eventually flow into the CPI as producers begin to go through higher input costs.”
Kenneth Wong, a producer who runs one of the world’s leading bra manufacturers with factories in China, Cambodia and Thailand, is feeling the pressure. Input prices have increased for about 20 components of clothing, such as fabrics, foam pads, metal wires, and plastic adjusters.
And prices are still rising, according to Mr. Wong, who was the head of Top Form Bra, a Hong Kong-based company founded by his father.
Under normal circumstances, Mr. Wong will quote clients the price of a product that will hold for his life cycle – as long as three years – he is now updating prices on a rolling basis.
“Before I used to buy things like elastic or thread or bark, we didn’t even have to think about it,” said Mr Wong. “But now, you really have to manage it.” – Bloomberg