Inflation Asia's biggest concern: think tank

SINGAPORE: Soaring energy and food prices will help push the Asia Pacific inflation rate to a forecast 3.6 per cent this year from 2.7 per cent last year, a regional think-tank said Friday.

At the same time, growth is tipped to slow to 3.7 per cent from 4.9 per cent in 2007, the Pacific Economic Cooperation Council (PECC) said.

It said inflation is the biggest worry for the region at a time of slowing growth in the United States, the world's largest economy and a major market for the region's export-reliant economies.

"While the slowdown in growth weighs heavily on policymakers' minds, it is the spectre of inflation that is causing the biggest headaches," PECC said in its latest outlook for the region.

"Combined together, there is very little room for monetary stimuli," it said in the forecast for 16 Asia Pacific economies including the United States, Japan and China.

Consumers are paying more for food and petrol throughout the region. The pain is particularly acute in Indonesia and China, the report said.
Inflation in Indonesia is projected at 11.7 per cent this year, nearly twice that of 6.6 per cent in 2007 while in China, it is seen at 6.0 per cent compared with 4.8 per cent last year, it said.

For Southeast Asia as a whole, overall inflation in 2008 is projected at 6.2 per cent, up from 3.2 per cent last year, said PECC.

"Even with appreciating currencies, Asia Pacific economies are starting to feel the pinch of higher energy and commodity prices," said Yuen Pau Woo, coordinator of the PECC report.

"The recent spike in food prices has not helped. Indeed, it has exacerbated the adverse impact on vulnerable groups who spend a high proportion of their incomes on rice and other staples," he said.

The slowing US economy, which some economists say is already in a recession, is the key reason behind the downward growth revisions for the Asia Pacific region, said PECC.

Most of Asia is expected to feel the impact of the US slowdown with China's economic growth seen weakening to 9.6 per cent this year from 11.4 per cent last year. In Japan, 2008 growth is projected at 1.6 per cent from 2.1 per cent in 2007, said PECC.

Real gross domestic product growth in the United States is tipped to slow to 1.0 per cent this year from 2.2 per cent but is expected to bounce back in 2009 with expansion of 2.5 per cent, it said.

"The revision to our forecast comes from increased pessimism about the health of the US economy, which is forecast to grow at only 1.0 per cent this year," PECC said.

"The knock-on effects of the slowdown in the US economy and the turmoil in financial markets are seen in downward revisions for growth in most Asia Pacific economies," it said.

PECC is a partnership of business, government, and academics serving as a regional forum for cooperation and policy coordination.