Food Inflation Begins to Moderate in Asia

R.K. Upadhaya, shopping for his family of six in New Delhi’s Kotla Mubarakpur market, says inflation means eating fewer vegetables and giving up fruit.

An Indian vendor prepares a display of vegetables on a stall at a market in New Delhi.
Raveendran | AFP | Getty Images
An Indian vendor prepares a display of vegetables on a stall at a market in New Delhi.

“We are now consuming less of everything than we used to,” says Mr Upadhaya, a welfare officer at the All India Institute of Medical Sciences. “With apple prices now over 100 rupees [$2.24] a kilogram and bananas over 30 rupees [a kilogram], we buy fruits only for our kids.”

The price of food items such as these is climbing faster than India’s official inflation rate of 9.41 percent. The cost of bananas in New Delhi is up 50 percent over the year, while paneer – a form of cottage cheese – has risen 26 percent to 145 rupees per kg.

Yet other food prices are falling. Staples such as tomatoes and potatoes, which peaked earlier in the year at levels that caused great stress to poorer families, have seen prices moderate in recent weeks.

In India’s case, this appears to be principally due to a good harvest that has boosted supplies. But it is also one of a number of developments across Asia that suggest a painful surge of inflation may be waning.

In Indonesia, for example, food prices have returned to normal after severe shocks caused by heavy rains. Leli Rustam, a Jakarta vegetable trader, says the price of chillies has fallen to just over $1 after jumping sevenfold to $8.20/kg in the wake of devastating rains.

Bank Indonesia was under pressure earlier this year to use interest rate rises to curb prices, but on Thursday it was able to hold its key lending rate at 6.75 percent, saying inflation pressures were decelerating “with continuing correction in food prices”.

Indonesia’s consumer price index fell to 5.98 percent in May from 6.16 per cent in April, while South Korea recently reported a fall in the index to 4.2 percent for April from 4.7 percent a month earlier. China’s index fell to 5.3 percent from 5.4 percent over the same period, and Singapore said on Wednesday that it expected average inflation for the year to be 4.1 percent, well below April’s 4.5 percent.

There are counter examples. Hong Kong’s CPI jumped 0.2 points from the previous month to 4.6 percent in April, propelled by its property market. Thailand’s index rose to 4.19 percent in May from 3.27 percent, and Vietnam suffered a surge to 19.8 percent in April, from 17.5 percent.

There are also concerns about core inflation readings, which strip out volatile elements such as food and energy prices. Core indices have continued to move up in some countries even as headline inflation numbers have declined.

Economists are beginning to say that the trend looks clearly downwards. “In our view, downside surprises are likely to become the order of the day in the not too [distant] future,” says Robert Prior-Wandesforde, Asia economist at Credit Suisse in Singapore.

The bank’s “surprise index”, which measures the difference between inflation announcements and consensus forecasts, turned downwards in mid-May, indicating that price rises may be slowing more dramatically than most regional economists have forecast.

There are several possible reasons for this. One is that the currencies of many Asian countries have strengthened against the US dollar, which helps to restrain imported inflation.

Asian economies are also decelerating from last year’s breakneck expansion, in part because of continued weakness in western export markets. Purchasing managers’ indices for May, published last week, showed a generally slower rate of expansion in manufacturing, which is feeding through into output prices.

Monetary policy tightening has contributed by damping domestic demand. Even Vietnam, Asia’s worst inflation performer, has a “realistic” chance of easing price rises to 15 percent this year after tightening monetary policy, says Hai Pham, Asia economist at ANZ in Singapore.

No one thinks Asian inflation is going away, however. Frederic Neumann, co-head of Asian economics at HSBC in Hong Kong, says the slowdown has “taken the sting” out of the problem for the time being. But he warns that inflation is still an underrated longer-term threat that needs close monitoring and decisive action by central banks and finance ministries.

“Structurally, price pressures remain a worry in Asia and will certainly flare up again once growth re-accelerates,” he says.