Soaring Food Prices Spice Up Asia's Inflation OutlookBy , , and
Items in India, South Korea, Japan record notable price gains
Economists say central banks can look through the gains
Radish prices jumped 71 percent from a year earlier in South Korea last month. In India, prices for tomatoes and onions have doubled from a year ago. Japan’s squid prices rose 17 percent in July from a year earlier. And in China, egg prices have surged at least 62 percent since April at Beijing’s Xinfadi, the nation’s largest agriculture wholesale market.
With exports across Asia faring better than just about anyone expected and domestic demand in most markets robust, could this be the start of a long-anticipated inflation breakout?
The short answer appears to be: no. Unlike past episodes in the region, when soaring prices threatened a broader inflation surge, the latest acceleration is expected to be transitory and remain confined. That’s because the one-off factors that drove food prices higher -- such as disruptive weather or supply constraints -- are tipped to fade.
Monetary authorities in Indonesia, Japan, the Philippines and Taiwan all meet in the remainder of the week. Indeed, so far Asia’s central banks have faced very little pressure to lift interest rates even as the Federal Reserve continues to tighten -- a contrast to past cycles.
"Core inflation remains muted or within manageable levels for most of the region," said Priyanka Kishore, lead Asia economist for Oxford Economics in Singapore. "I do not see the risk of imminent policy tightening anywhere."
Still, there are pockets that are hurting. In India, where food accounts for 46 percent of the consumer price inflation basket, the food index rose 1.5 percent in August from a year earlier -- the first rise in four months. While soaring tomato prices haven’t been enough to push overall inflation above the central bank’s targeted inflation range, the swing in prices could narrow the scope for the Reserve Bank of India to lower rates again.
"Upside risks to food prices remain potent as the monsoon has been deficient and the distribution too has been uneven," said Indranil Pan, chief economist at IDFC Bank, Mumbai.
South Korea’s inflation accelerated to 2.6 percent in August from a year earlier, the fastest pace since 2012 and above the central bank’s 2 percent target. A sub-index for fresh food jumped 18.3 percent from a year earlier, driven by high temperatures and heavy rain over the summer. Egg prices rose 53 percent in August from a year earlier, impacted by a bird flu outbreak in late 2016 and early 2017 that sparked mass poultry culling.
Officials don’t expect the gains to persist. The central bank said in an August statement that inflation for the whole year will be at about 1.9 percent and the finance ministry expects prices to cool as vegetable supplies improve with better weather.
Japanese inflation rose 0.4 percent from a year earlier in July, largely due to a 0.6 percent gain for food prices and higher energy costs. Like South Korea, unseasonal weather has had an effect, while fluctuations in the yen have impacted imported food.
China’s consumer price index rose 1.8 percent on year in August, with food prices the main contributor. As with elsewhere, the impact is expected to be temporary.
Some are bucking the trend. Indonesia’s food prices fell in August compared to the previous month as demand slowed in the wake of the fasting month in June and Eid al-Fitr celebrations, which are commonly marked by spikes in food prices as local Muslims stock up for evening feasts. Prices for shallots, cayenne pepper, and garlic declined last month.
Taiwan’s food costs are declining mainly because of sharp declines in vegetable prices, which helped offset gains in fuel and fruit.
For the world’s fastest growing region, while the latest rash of food price pressures may be transitory, inflation is set to accelerate nonetheless, thanks to a broader demand pick up, said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong.
"We should not forget that the cyclical upturn that Asia is experiencing, led by a strong recovery in global demand as well as very accommodative financial conditions locally and globally, is going to push inflation upwards," she said. "There is no doubt about it."
— With assistance by Yinan Zhao, Karlis Salna, Karl Lester M Yap, and Toru Fujioka