Price Spikes In Asia Mean the World Is Now Facing Inflation

TAs food and energy prices in Asia surge, the world faces an inflationary wave. It is quite a change from the situation a few months ago where the region seemed to have avoided the rising price of oil and gas.

Inflation readings across the region — China, India, Indonesia, Philippines, Thailand and South Korea — recently rose more than forecast, while New Zealand on Wednesday hiked rates by the most in 22 years over price worries. Further, rising manufacturing costs indicate that the worst is still to come.

Rising inflation expectations are being priced in by markets. Central banks across Asia have been taking more aggressive action. That’s beginning to mirror trends seen in the U.S., where data Tuesday showed consumer prices last month rose by the most since late 1981, piling fresh pressure on the Federal Reserve to respond.

The yields on regional government bonds have increased this year. South Korea is the leader, and the emerging Asia total returns index has fallen 2.6%. This marks its worst performance since 2013. It is expected that the central banks of some countries will increase interest rates to reduce inflation and help support currencies in regions where capital flees.

The turning point was Russia’s invasion of Ukraine, which triggered an upheaval in commodities markets. That pushed energy and fuel prices higher and threatened grain supplies to the world’s top consuming region. Global food prices are set to record highs due to rising transport and fertilizer costs.

The Asian Development Bank stated earlier in the month that rising commodity prices have been causing inflation to rise by 1 percentage point, or 3.7%, this year. While that’s relatively tame compared to rates in the U.S., it’s forcing policymakers to shift focus and spooking some investors.

A net $22.3 billion in investments last month flowed out of emerging Asia, excluding China, according to Australia & New Zealand Banking Group — marking the biggest sell-off since March 2020.

India, the world’s second-most populous nation, is feeling the food and energy pinch. At his vegetable stall in a Mumbai suburb, Dnyaneshwar Uttam Sante’s problems could be seen in the plastic bag of mixed vegetables he had just packed for a customer: He was charging 450 rupees, or almost $6, which is about 80% more than a few weeks ago.

“I’m helpless,” Sante said, just as a customer chimed in about the “unbelievable” cost of a cooking gas cylinder, which had risen almost 30% to 960 rupees.

Continue reading: Here’s What Costs More and How to Plan for It

The reaction by the Reserve Bank of India is emblematic of Asia’s growing pressures. Governor Shaktikanta Das last week cited a “tectonic shift” in the macroeconomic and inflation outlook since the end of February — basically, Russia’s invasion of Ukraine — which “upended the earlier narrative” of calmer price pressures this year.

“In the sequence of our priorities, we have now put inflation over growth,” Das said.

China’s producer prices increased 8.3% in February from last year, compared to 8.8% in February, but higher than the 8.1% median estimate. 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 up by energy costs.

The central banks of South Korea, Singapore, and Singapore meet this week. Economists are divided on the prospect for a rate hike in Seoul, while economists from Singapore expect to tighten setting to fight imported inflation.

According to HSBC Holdings Plc, food poses the greatest inflation risk for Asian central banks despite it being a net exporter. Another potential source of inflation for logistics is China’s roll-down lockdowns to stop Covid-19.

What’s more, further consumer price hikes are likely as manufacturers’ input costs continue to climb.

The correlation between consumer and factory costs and prices can be affected by a variety of factors. However, analysts from ANZ Inc. & Nomura Holdings Inc. predict more inflation.

“The gap between PPI and CPI is currently exceptionally large,” said Krystal Tan, an economist at ANZ, referring to prices paid by producers and consumers. “This suggests to me that there are significant price pressures in the pipeline that will flow into CPI eventually as producers start to pass through more of the higher input costs.”

One producer feeling the squeeze is Kenneth Wong, who runs one of the world’s leading manufacturers of bras, with factories in China, Cambodia and Thailand. The input costs for about 20 parts of the clothing staple, including fabric, foam pads and metal wire, have risen dramatically, according to Kenneth Wong.

Wong is the head of Top Form Bras in Hong Kong, which was founded by his father.

While in normal circumstances Wong would quote clients a price for a product that would hold for its life cycle — as long as three years, for example — he’s now updating prices on a rolling basis.

“Previously when I was buying things like elastic or thread or buckles, we didn’t even need to think about it,” Wong said. “But now, you really need to manage it.”

Assistance from Yantoultra Ngui and Suttinee Yuvejwattana. Anuchit Nguyen. Siegfrid Aegado. Grace Sihombing. Yoshiaki Nohara. Marcus Wong.

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