Inflation Quickens From Korea to China, Boosting Case for Asia Rate Rises
Asian economies from South Korea to China and India face rising inflation pressures, bolstering the case for more interest-rate increases across a region that’s leading the recovery from the global financial crisis.
In South Korea, consumer-price gains breached the central bank’s 4 percent ceiling in January, according to government data released today. Indonesian inflation quickened, manufacturing in India expanded at a faster pace and input prices rose in China, separate reports showed today.
Asian central banks may need to raise interest rates further to limit the risk of overheating in their economies and prevent a “hard landing,” International Monetary Fund Managing Director Dominique Strauss-Kahn said today. Higher costs for food from onions in India to rice in Indonesia, and inflows of capital to the region are helping to drive prices higher.
Rate increases are likely in most emerging Asian economies “over the next few months, with risks increasingly skewed towards more aggressive action,” said Brian Jackson, Hong Kong- based senior emerging markets strategist at Royal Bank of Canada.
Policy makers in some countries may consider the use of temporary capital controls to aid financial stability, Strauss- Kahn said in a speech in Singapore today. Global imbalances are re-emerging as the world rebounds from the financial crisis, and may put the sustainability of the recovery at risk, he said.
Asian economies led a global recovery last year that’s been restrained by Europe’s sovereign-debt crisis and a U.S. job market where unemployment has exceeded 9 percent since May 2009.
Thailand, South Korea and India increased rates last month and China’s central bank has moved twice since mid-October and also pushed banks’ reserve requirements to the highest in more than two decades.
‘War’ on Inflation
In South Korea, the consumer-price index rose 4.1 percent from a year earlier, after gaining 3.5 percent in December, Statistics Korea said today in Gwacheon, south of Seoul.
President Lee Myung Bak last month declared “war” on inflation, saying it must be contained at 3 percent to protect people on low incomes. Today’s inflation data may prompt the Bank of Korea to raise interest rates next week when it reviews policy, according to Royal Bank of Canada.
Consumer prices in Indonesia, Southeast Asia’s biggest economy, rose 7.02 percent last month from a year earlier, after a 6.96 percent gain reported earlier for December, Central Bureau of Statistics data showed in Jakarta today. That’s more than the 6.81 percent median forecast in a Bloomberg News survey of 21 economists.
Indonesia Rates
Bank Indonesia has kept its policy rate at 6.5 percent since August 2009, delaying an increase that could attract more funds at a time when emerging markets are luring investment. Still, Governor Darmin Nasution said this month he is “ready to raise the interest rate at an appropriate time.”
Inflation “might even get stoked further” if the central bank refrains from raising rates at its review of monetary policy on Feb. 4, Wellian Wiranto, an HSBC Holdings Plc economist in Singapore, wrote in a note. Bank Indonesia may boost the benchmark rate by 0.25 percentage point, Wiranto said.
China’s manufacturing expanded last month and an input- price index rose to 69.3 from 66.7 in December as food costs climbed, according to data released by China’s logistics federation on its website. The input-price index rebounded after easing in December from a 29-month high in the previous month.
Speculation in China
China’s inflation may have quickened to more than 5 percent last month after easing from a 28-month high in December, economists including those from UBS AG forecast. An interest- rate increase may come immediately after the Chinese Lunar New Year holiday, which runs from tomorrow to Feb. 8, according to BNP Paribas.
India’s Purchasing Managers’ Index rose to 56.8 from 56.7 in December, HSBC and Markit Economics said in an e-mailed statement today. A reading above 50 indicates expansion. The Reserve Bank of India on Jan. 25 increased rates for the seventh time since mid-March.
The Reserve Bank of Australia kept its benchmark interest rate unchanged and said it will “look through” the near-term impact on growth and prices from flooding across the nation’s east coast. Flood reconstruction doesn’t pose much inflation risk, Governor Glenn Stevens said in a statement today.
--Li Yanping, Eunkyung Seo, William Sim, Kartik Goyal, Unni Krishnan, Shamim Adam, Novrida Manurung and Widya Utami. Editors: Paul Panckhurst, Stephanie Phang
To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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