Inflation Swept Across Southeast Asia

The suppression of soaring prices is by no means simple, and global inflation is likely to trigger a new financial crisis. Raising interest rates, once the first time, can not help the temptation of the second time. Asian countries have not only taken the lead in the world's anti inflation problem, nor have their financial subsidy policies relaxed. But the consequences of the government led inflation fight are tighter and tighter. On April 16th, world bank leaders warned the developed countries that inflation will also become the primary concern of the OECD member countries in the future.

Southeast Asian countries welcome another increase in interest rates

Raising interest rates has become the favorite policy of Asian countries in order to prevent the price inflation from going too fast. According to Bloomberg news, Singapore's monetary policy tightened for the three time in a year, which could lead to another wave of interest rate increases among Asian central banks, and South Korea and Indonesia will also have new interest rate increases this month.

In addition to raising interest rates, government subsidy is another way to stabilize prices. As the price of oil continues to rise, the government subsidies in some Asian countries are also increasing. However, recent analysis indicates that the financial situation in Southeast Asian countries is tight. The Bank of America Merrill Lynch research report shows that India, Indonesia, Malaysia and Thailand are the most energy subsidies in Asia, and are already exceeding the target of fiscal deficit.

In April 20th, the Central Bank of Thailand will announce interest rate plans at the monetary policy conference. Economists from Bloomberg expect Thailand central bank to raise interest rates to 2.75%. The Central Bank of India completed its eighth interest rate increase in a year to 6.75% last month. Malaysia and Philippines may follow up in May. Even so, inflation has not stopped rising, as international oil prices rose to $113.46 a barrel last weekend. The increase in interest rates has further affected the export of Asian countries. Many economists predict that too frequent interest rates in Asian countries may lead to vicious export competition.

Government subsidies lead to fiscal tightening.

Southeast Asian countries are changing the corresponding policies to fight against rising prices. The government of Thailand lifted the price restrictions on some foods and continued to grant subsidies to control diesel prices. Since April, the Thai government has allowed 10% of the commodities to be raised, soybean oil and milk prices were lifted first, and soybean oil prices rose by 20% in recent times. Indonesia decided to extend subsidies for oil prices. The Indonesian government originally decided to cancel the oil subsidy measures to Jakarta area since April and raise the retail price of oil. But considering that it will aggravate the burden of the public, and then have an impact on car sales, the decision will eventually be made to extend the subsidy time.

Economists worry that long-term subsidies and tax rebates may lead to a worsening of government finances. Indonesia's gross domestic product has reached 1.8% of the deficit this year, and Thailand's budget deficit will also reach 5%. Jim Walker, director of the Asia Pacific market of CLSA, said that when food prices are rising, government pressure will increase, and at the same time, every means will be taken to stop the deterioration of the inflation situation, leading to inappropriate spending and subsidies. If the inflation crisis is not released on a day, the state will fall into an unstable state of financial affairs for a long time.

Southeast Asian countries seem to have become the arena of exchange rate depreciation. The currency competitive devaluation atmosphere has increased the central bank's policy to restrict the increase in interest rates. However, all countries still do not know that the implementation of these measures is not only inhibiting the appreciation of the local currency, but also blowing up asset price bubbles in the country and contributing to inflation in all countries. Malaysia said it would halve the subsidy in 2014 to improve its finances. The world bank's latest report says that East Asia and the Pacific have adopted ways of increasing subsidies to deal with price fluctuations, but this can only play a temporary role in easing. This exacerbates the cost of policy and hopes that the government will adopt new measures as soon as possible.