Inflation a threat to sustained Asian recovery: ADB

Some of Asia's emerging economies are showing signs of overheating, underscoring the need for further policy tightening and more flexible foreign exchange rates to tackle growing inflationary pressures, the Asian Development Bank said on Wednesday.
Developing Asia, a diverse group of economies including China, India, Azerbaijan, Thailand and Fiji, is expected to grow 7.8 percent in 2011 and 7.7 percent in 2012, robust rates albeit slower than the 9 percent seen in 2010, the ADB said in its latest Asian Development Outlook report.
At the same time, inflation is expected to quicken to an average 5.3 percent this year from 4.4 percent in 2010, before easing to 4.6 percent in 2012, the ADB said. Some countries such as Vietnam and Pakistan could see inflation rates climb well into the double digits.
"There is some sign of overheating, some need for more policy tightening in future," ADB chief economist Changyong Rhee said at a media briefing in Hong Kong, speaking generally of Asian inflation. "Developing Asia is home to two-thirds of the world's poor and it is they who are most vulnerable to the effects of price increases," he said. "Policymakers must therefore consider pre-emptive action to control inflation before it accelerates."
Higher interest rates alone may not be enough to tamp down price pressures, Rhee added, urging policymakers to use a variety of measures to curb inflation, including allowing greater flexibility in their currencies and capital controls. Besides rising food and fuel prices, other risks to regional growth included soft job and housing markets in the United States, Europe's debt problems, and the economic impact of last month's massive earthquake in Japan and nuclear crisis, the ADB said.
The ADB, which said its report was generally based on data available up to March 16, said the impact of Japan's disaster was hard to quantify, but was likely to impact negatively on the country's economic growth for the next two quarters, with minimal spillover disruptions to other Asian economies.
China, in particular, could do more to tighten monetary policy, the ADB said, even after Beijing raised interest rates on Tuesday for the fourth time since October. Inflation in China is running at around 5 percent and could accelerate further in coming months.
A surge in inflation, particularly food price inflation, could pull down those who are currently just above the poverty line, making it a social as well as economic concern, the ADB said.
The report said recent estimates showed a 10 percent rise in domestic food prices would raise the number of poor in developing Asia by about 64 million, or more than 7 percent. Inflation in Vietnam could reach 13.3 percent this year, the second highest in the region after Pakistan, which could see inflation of 16 percent, the ADB said. But tackling inflation driven by global and supply-side factors can put policymakers in a difficult position. Steps such as tariff cuts and export bans have varying success, and there could also be problems with local infrastructure or domestic supply chains that exacerbate price pressures.