Jakarta, March 3: A spike up in inflation was bound to be an inevitable consequence of Asia's currency meltdown, but figures published this week show that in some countries it is kicking in with a vengeance.Three Asian IMF patients published consumer price data on Monday and all showed unhealthy gains in February, with Thailand's year-on-year rate rising to 8.9 per cent from 8.6, South Korea's 9.5 from 8.3 and Indonesia's 31.7 from 18.1g.
Inflation levels show a rough correlation with the scale of the falls in local currencies, the bigger the fall the higher the rate of inflation.
Since the crisis began last July the Thai baht has dropped 40 per cent against the dollar, the Korean won 42 per cent and the Indonesian rupiah 70 per cent. "It's a question of how much countries are reliant on imports," said Andrew Fung, regional treasury economist at Standard Chartered in Singapore. "Indonesia in particular is suffering because it has been suffering drought after El Nino and the forest fires have beenaffecting agriculture as well, so it is particularly reliant on food imports.
"He noted that the problem of hoarding was also driving up food prices in Indonesia even though the police have threatened jail terms or even death for those found guilty.
Indonesia is a special case with its attendant problems, and the picture is not as gloomy elsewhere.
But analysts said there will be another slug of inflation coming through regionwide further down the line as wholesalers and retailers begin running out of stocks.
At present stores may be able to keep price rises to a minimum to help preserve their natural market. But at some stage they will have to restock, maybe from offshore, at higher prices.The other factor that makes the inflation profile differ from country to country is that of domestic demand.
For example, wholesale prices jumped 20.2 per cent in Thailand in February, but consumer prices rose only 8.9 per cent, and in South Korea producer prices soared 17.7 per cent with retail prices up 9.5 percent.Analysts said inflation will tend to be worse in countries like Indonesia where demand for necessities such a food is high, than in other more broadly developed countries where a bigger proportion of the population can more easily cut back on non-basic items.
A retailer selling electronic goods in Korea will not be able to raise prices, but someone selling essential goods like food in Indonesia might more easily be able to pass price rises on.Also in the case of Indonesia, where inflation could well turn into hyper-inflation of 40 or 50 per cent per month, sharp price rises will start getting priced into contracts.
"If you look at the Latin American experience, when you have level of inflation of 30-40 per cent you are on the threshold, and if people start writing that sort of level into contracts we could see it accelerate to hundreds of per cent," said Daniel Lian, head of Asian markets research at ANZ in Singapore.
"They (Indonesia) are deep in the mire of businessmen who are creating a lot ofthese contracts, they are deep in the mire of suppliers who want to exploit the price increase.. whoever participates in the economy is going to try and exploit the inflationary situation.
""Fixed income earners are going to suffer enormously."Although analysts are worried about Indonesia running into hyper-inflation in the coming months, they say there is little danger of seeing a Latin American-style inflationary boom across Asia.
The difference in Asia is the relative softness of domestic demand together with the fact that the monetary and fiscal policies have been tightened quite sharply in recent months.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
