Asia faces a “serious setback” from surging oil and food prices that are fueling inflation and threatening to push millions into extreme poverty, the Asian Development Bank said.
The region’s growth may be reduced by as much as 1.5 percentage points should the pace of gains in oil and food prices seen so far this year persist for the rest of 2011, the Manila-based lender said in a statement today. Domestic food inflation in many Asian economies has averaged 10 percent this year, an increase in prices that may push an additional 64 million people into extreme poverty, defined as living on less than $1.25 a day, it said.
Policy makers from China to India and Singapore are stepping up the fight against inflation through interest rate increases or currency appreciation as political unrest in the Middle East boosts crude oil prices. The pattern of “higher and more volatile” food prices is also likely to continue in the short term amid declining grain stocks, the ADB said.
“To avert this looming crisis it is important for countries to refrain from imposing export bans on food items, while strengthening social safety nets,” ADB chief economist Rhee Chang Yong said in the statement accompanying a report on global food inflation today. “Efforts to stabilize food production should take center stage, with greater investments in agricultural infrastructure to increase crop production and expand storage facilities, to better ensure grain produce is not wasted.”
The ADB this month raised its 2011 economic growth forecast for the region and said policy makers should consider capital controls and more flexible currencies as part of their inflation-fighting strategies. Asia excluding Japan will grow 7.8 percent in 2011, it predicts.
“Food prices had been expected to continue a gradual ascent in the wake of the sharp spike in 2008,” the ADB said. “Fast and persistent increases in the cost of many Asian food staples since the middle of last year, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region which has rebounded rapidly and strongly from the global economic crisis.”
Oil traded at $111.57 a barrel today, and has climbed 22 percent this year. Corn prices have risen 90 percent while wheat and soybeans are more than 40 percent higher on global commodity futures markets in the past year. Rice futures surged to a two-month high on the Chicago Board of Trade yesterday.
“For poor families in developing Asia, who already spend more than 60 percent of their income on food, higher food prices further reduce their ability to pay for medical care and their children’s education,” Rhee said. “Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia.”
Rising consumption in more populous and wealthier developing countries, competing uses for food grains, shrinking available agricultural land, and stagnant or declining crop yields will also spur prices, the ADB said.