Monday, February 25, 2008

Inflationary Asia



Inflation is creeping up across Asia. The headline figure in Singapore has hit a 25-year high with inflation hitting 6.6%.

The figure seems to be higher than expected but the Ministry of Trade and Industry said the January inflation figure was 'consistent' with the government's official inflation forecast.

As pointed out by the AP report, the Singapore government recently raised its inflation forecast for the year to 4.5-5.5%, faster than the 3.5-4.5% announced in November. The Straits Times today said that inflation in Singapore could hit levels not seen since the oil crisis of the late 1970s.

The Singapore government will no doubt think of more ways to contain inflation. An even stronger Singapore dollar is definitely a certain policy option at this stage.

While Singapore's inflation rate seems higher than expected, the Consumer Price Index across the causeway seems too tame in the current environment. According to Bloomberg, Malaysia's inflation is set to hit a 10-month high of 2.9% this year.

Like Singapore, Malaysia has a very open economy. As a result, the two countries do pay the price for imported inflation.

Sophie's World has always had a nagging feeling that the inflation rate in Malaysia is understated. Prices of some items, especially imported goods, in Malaysia seem to be rising more rapidly than those in Singapore.

In many cases, prices of certain items in Malaysia are higher than or equivalent to those in Singapore. This is just Sophie's World unscientific observation. :-)

Even the threat of higher inflation has become an election issue in Malaysia. Check out the Democratic Action Party's campaign song (youtube video above), which includes a pledge to tame inflation in the country. Is there a need to tame it if it is rising at less than 3%?

While inflationary pressure is rising across Asia, the fast-growing region is not expected to see hyperinflation. Asia is still expected to see healthy, albeit slower, growth despite the increasing likelihood of a recession in the United States due to the sub-prime woes.


Earlier postings:
Rising cost of crime, 1 June 2007
Rising cost of living in Malaysia
, 16 Nov 2006
Rising cost of living in Singapore
, 16 Nov 2006

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