Inflation greater problem for East Asia

SINGAPORE: East Asian nations must act promptly to ease the burden of mounting food and fuel prices on the region's poor, the World Bank said on Tuesday.

Inflation poses a greater challenge to the region's economies than the current financial turmoil, it said.

In its half-yearly update on the region's outlook, the bank said growth in developing East Asian economies could slip by 1 to 2 percentage points as the US credit crisis unfolds, damping demand for exports

But it warned that food and fuel prices that have soared in recent years are a more pressing problem for governments to tackle. Since 2003, oil and many other commodity prices have more than tripled and doubled, respectively.

"While the subprime crisis will have its impacts, possibly on some countries more than others, the more immediate concern is that in virtually every East Asian country, inflation is climbing to uncomfortable levels," Jim Adams, vice president of the World Bank's East Asia and the Pacific region, was quoted as saying in a release.

The urban poor and landless rural workers who devote between a third and two thirds of their expenditures on food are seeing their real incomes decline substantially, the report said.

Similarly, "while higher fuel prices hurt everyone, the poor are hurt disproportionately," it said.

The region could suffer an aggregate income loss of about 1 per cent of gross domestic product in 2008 from the effect of higher food prices and additional increases in oil and metals prices, the bank said.