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 29 June 2008

Asian countries under test in face of inflation

Feeling the mounting pressure of inflation, Asian countries are now waging an all-out war against soaring prices.

In May, inflation in Vietnam surged to 25 percent year-on-year, with prices for rice and other grains shooting up 68 percent, according to Vietnam's bureau of statistics.

The high inflation was also blamed for the devaluation of Vietnam dong in the local black market. Plus other bad economic news like a widening trade deficit and a tanked stock market, Vietnam's economic performance even caused doubts of an economic crisis among economists.

As a matter of fact, other Asian economies, except Japan, are facing the same pressure of inflation. In May, Indonesia reported inflation over 10 percent, the Philippines, 9.6 percent, India, 8 percent and Thailand, 7.6 percent. Even inflation stalwart like Singapore reported a 26-year high of 7.5 percent.

The situation coincided with Asian Development Bank's (ADB) warning recently. Citing inflation "the biggest risk" for Asia in the future several years, the ADB predicted that Asia's inflation would hit a 10-year-high of 5.1 percent in 2008, or maybe higher, and could threaten economic growth in the region.

The ADB attributed the high inflation in the region mainly to the soaring prices of oil and food-related products. Statistics show that oil price has surpassed 140 dollars per barrel this month, double the price a year ago. In the meantime, global agricultural commodity prices have been shooting up more than 8 percent this year, after a 41 percent rise in 2007.

The loosened monetary policy adopted by Asian economies in the past years, geared at speeding up economic growth, has also led to the high inflation, said economists.

The ADB called on Asian monetary and fiscal authorities to "recognise inflation as a very major concern" and take all steps to rein in the inflation.

"Asia has had a very good growth story. We need to focus on inflationary pressure, otherwise the growth story will be endangered," warned Rajat Nag, managing director general of the ADB.

"Inflation is the worst form of taxation on the poor. Inflation hurts the poor much more than it hurts the rich," he said.

Despite the success of some countries' economies in recent years, the Asia-Pacific region remains home to 1.5 billion poor people, two-thirds of the world's total who live on less than two U.S. dollars a day.

Asian economies bear the same thoughts and have listed curbing inflation high priority.




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