Early warning signs of inflation are appearing in some parts of Asia, as higher energy and food prices start to bite in countries that recently seemed immune to cost pressures.
India’s inflation accelerated to 6% in January, well above the trend of around 3.6% in the three years leading up to the Covid-19 pandemic, while Sri Lanka’s inflation hit 14.2% that month, the highest in more than a decade. In South Korea, core consumer inflation recently rose to 3%, its highest level since January 2012.
Thailand’s consumer price inflation is now 3.2%—after averaging less than 1% in the three years leading up to 2020—even though the tourism-reliant country has one of Asia’s weakest economies. Angry truck drivers recently clogged streets in Bangkok to pressure the government to lower diesel prices.
Some families say they are switching over to crocodile meat as an outbreak of African swine fever pushes pork costs higher.
Inflation across most of Asia is still well below levels seen in some western economies, including the U.S., where consumer prices rose 7.5% from a year earlier in January, a four-decade high.
Consumer price pressures are particularly weak in China, despite recent cost increases for factories. While industrial inflation remains high in China, it has eased recently and factories have struggled to pass expenses on to consumers as the broader economy struggles to recover from a property market slowdown and other problems. Consumer inflation inched up just 0.9% in January from a year earlier, down from December’s 1.5% gain. It is widely expected to stay below 3% this year.
Most Asian economies still have excess labor capacity, unlike the U.S., as many taxi drivers, hotel and restaurant workers have yet to find full-time employment after losing work during the pandemic.
China and some other economies in Asia are also struggling with weak growth in consumer demand, in part due to recurring Covid-19 restrictions and the fact that most governments didn’t roll out big-ticket stimulus packages as the U.S. did.
But many Asian nations, including South Korea, India, and Thailand, are also major importers of energy or food, which have become more costly.
Food prices globally rose 28.1% in 2021, according to the Food and Agriculture Organization of the United Nations. After doubling in price during 2021, U.S. West Texas Intermediate crude futures have climbed another 20% this year to around $91 per barrel.
Some economists believe oil prices could breach $100 per barrel this year, especially if there is a Russian invasion of Ukraine. If so, it would potentially hurt emerging markets more than advanced economies, Goldman Sachs analysts said, since energy costs make up a larger percentage of consumer budgets in the developing world.
Singapore, South Korea and Indonesia are among the Asian countries that have begun tightening monetary policy to curb rising housing prices and other cost pressures, even as China eases credit conditions to reignite growth.
Even if Asia’s price pressures remain lower than those in the U.S., most central banks in the region—with the exception of China—may be forced to sacrifice economic growth to some extent in order to contain the expectation of inflation this year.
India’s central bank earlier this monthü held its key lending rates steady. Reserve Bank of India Gov. Shaktikanta Das said inflation—led by a surge in vegetable and edible oil costs—is expected to ease in the coming months, though the oil-price increase needs to be “closely monitored.”
Central banks in Thailand and the Philippines also recently refrained from raising rates. But the Philippine central bank raised its inflation forecast to 3.7% in 2022—from 3.4% previously—citing higher oil prices and food supply shortages. Thailand’s central bank warned that inflation this year could be “higher than previously assessed” and “exceed the target range” during the first half of 2022.
Apichart Prairungruang, chairman of the Land Transport Federation of Thailand, said in an interview earlier this week that truck owners have been operating at a loss for months because of high diesel prices, with more than 100 trucks seized by lenders. Truckers called on the government to lower fuel excise taxes to help restore profitability.
“We understand the world’s situation” with rising fuel prices, he said. But “if the government can’t do anything about this, we have to increase our transportation fees by up to 15% to 20%,” which will eventually flow to households, he said.
On Tuesday, Thailand’s cabinet agreed to a temporary cut of the diesel tax, for three months.
In Nakhon Pathom, near Bangkok, a local eatery called the Grilled Pork Buffet Restaurant was offering barbecue pork with vegetables, ice cream and a drink for the equivalent of about $4.50 per person. But after pork prices rose by around 60% amid a production drop due to swine fever and extreme weather, the owner, Pattanachat Ngamsanga, said she could no longer earn a profit.
She started offering cheaper crocodile meat, which she says tastes like pork but is softer. The first day, the crocodile meat sold out, so she started offering more.
“Our customers love it,” she said. “Crocodile meat has really saved my life.”
Many economists still believe Asia will be able to keep significantly higher consumer inflation at bay, given how weak consumption growth is lingering in many countries. Meanwhile, supply shocks that continue to haunt most developed economies in the West, including port congestion and skyrocketing shipping costs, haven’t affected Asia as much.
That means Asian countries can be more “relaxed and lenient” in tightening policy than some other countries, including the U.S., which is expected to raise interest rates as early as March, though Asian central banks will have to tighten more eventually.
Labor shortages have appeared in some places, often due to Covid-19 lockdown measures, which reduced the flow of migrant factory workers in some countries. But it isn’t clear whether those problems will be long-lasting, with labor still more widely available than in the U.S.