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Asia may Spread Higher Inflation For the World

In: Finance, Forex

The Asia-Pacific Director of the International Monetary Fund said Asian countries may start exporting inflation to the world if consumer prices catch up with rising energy costs, adding to global inflationary pressure weighing on growth.

Director Rhee’s comments point to the risk of Asia eventually contributing to a feedback loop of global prices if commodity prices continue to rise.

Changyong Rhee, Asia-Pacific Director for the IMF, said “If oil prices continue to increase and producer costs increase, it’s inevitable it’ll eventually come to the price of retail goods, in that stage Asia can export inflation further to the world, but it is not yet at that stage.”

Inflation is rising faster than expected even though the IMF expects it to peak in Asia during the second half of the year, said Rhee, whose name has been floated by South Korean media as a potential successor to Bank of Korea Governor Lee Ju-yeol.

The war in Ukraine, coupled with the U.S. monetary policy normalization, will lead to higher food and energy prices for Asians, hurting their real income particularly among poor households.

The remarks come after Jerome Powell said the central bank was prepared to raise interest rates by a half-percentage point at its next meeting to curb inflation if needed.

Rhee Added “Higher borrowing costs and exchange-rate pressure will definitely slow down Asia’s recovery.” “Higher global interest rates will definitely reduce the growth momentum in Asia,” said Rhee, characterizing the possibility of bigger U.S. rate hikes as bad news for the region.

Whoever takes on as Governor of the Bank of Korea will face rising inflation and household debt among the biggest challenges, and any policy decision will have to be based on data given high economic uncertainties.

Governor Lee leaves at the end of March and the BOK may hold its April rate decision without a governor in place as President-elect Yoon Suk Yeol has yet to name a successor.

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