Home  >>  Daily News  >>  ASEAN ANALYSIS

Inflation moves west

 
AseanAffairs     18 February 2011

For the last several months inflation, spiked by rising food and commodity prices, has been an issue in Asean countries and now the inflation bug has moved to the West.

An inflation increase in the United States showed an increase at a higher than expected rate yesterday and followed a jump in the European cost-of-living index to a two-year high and a rise in Chinese prices.

The inflation surge came just in time for the G-20 meeting of nations in Paris giving officials another problem to solve.

The U.S. inflation rate accelerated to 1.6 percent in January above the January 2010 rate, the highest since May, figures showed yesterday. The euro area’s January rate of 2.4 percent was the fastest since October 2008, above the European Central Bank’s 2 percent projection. The higher inflation has raised interest rates.

Within the G-20 group, China, Brazil, India, Indonesia and South Korea have raised interest rates.

What are the answers?

The goal of the two-day G-20 Paris meeting, move toward an agreement on the use of economic indicators to monitor the topsy-turvy trade and financial flows that threw the world into the worst economic crisis since World War II.

Economic improvements in the United States and Europe have reduced global disequlibrium as China’s trade surplus fell for the second year in 2010.

To develop a more stable international monetary system, one solution might be a greater role for the Chinese yuan by making it a component of the International Monetary Fund’s special drawing rights as an alternative reserve asset to the dollar.

Some western leaders say that Asians fear a floating exchange rate, although Chile, Mexico and Brazil have had success using that approach.

Hopefully the G-20 meeting will develop an inflation-fighting strategy. When they adjourn The G-20 tomorrow.

By

Paul A. Ebeling, Jnr