Asia’s war on inflation targets supply, not consumers -Breaking
Stefanno Sulaiman & Orathai Sulaiman
(Reuters) – From price controls to export bans, Asian governments are using a more focused approach to curbing inflationary pressures. This strategy seems to work, at least temporarily.
Inflation remains an economic threat in Asia. However, many of these countries’ measures helped to protect consumers from rising prices. Central banks have also not been required to raise rates in Asia as fast as other places.
All these efforts helped shift some costs away from small and medium-sized businesses, and largely to government balances.
“We have not seen any weakening in purchasing power,” said Baskoro Santoso, investor relations officer at Indonesian snack maker Mayora Indah.
He said that although the company had adjusted its prices in the second half last year, it hasn’t seen any material impact on business. This is especially true during Ramadan, which he stated.
Indonesia is a country that has a long history of price volatility and financial volatility. Last week, it increased energy subsidies by $24 Billion to control energy costs. It had just lifted an controversial ban on palm oil exports.
Despite the fact that many of Southeast Asia’s biggest retailers have had to accept price increases, households demand is strong and inflation remains within the target range of 2-4%.
South Korea has government caps that limit electricity consumption. This gives global producers like Samsung Electronics (OTC) and Hyundai Motor a competitive advantage and helps to offset the impact on households’ disposable incomes.
Instead, the caps have squeezed Korea Electric Power Corp (NYSE:) Corp. The state-run utility for power Korea Electric Power reported a record quarter loss due to sharply rising fuel import prices. This increased the likelihood of a government capital injection.
India banned exports of wheat this month because of a scorching heatwave that curtailed production and saw domestic prices reach record levels.
Malaysia announced this week that it will stop exporting 3.6 million chickens per month from June to ensure stable prices. The country also has mechanisms that subsidise cooking oil and heavy fuel.
This intervention in the domestic supply of goods and services is not a new concept for Asian governments. They are very sensitive to backlash from public price increases. However, economic reforms over the last decade, as well as a greater focus on fiscal discipline, have allowed for more room for market forces.
Western governments, however, have been slow to intervene on production lines in order to reduce the prices of essential items like fuel and food. The U.S.- and UK inflation rates have risen to record levels, impacting both retailers’ profit margins and consumers’ purchasing power.
Walmart (NYSE:), Target Due to rising inflation, major U.S. retailers reported earnings in this month.
The U.S. central bank is currently engaging in aggressive interest rate rise cycles.
It contrasts sharply with an overwhelmingly more benign outlook on policy in Southeast Asia. The central banks there have recently started a more cautious shift from very low interest rates. However, tightening will be much more gradual in Southeast Asia than it is in the West.
Thailand’s headline inflation just exceeded the 1-3% target range by the central bank. However, the chief of the bank has promised continued monetary assistance for economic recovery.
While the overall outlook for Thailand is positive, retailers are still feeling squeezed by customers refusing to pay higher prices. However, this policy won’t help every sector.
Radavadee Radanachaiuchukorn is the president of Chotakkarasup Co. Ltd., which refers to tropical fruits.
But because we have higher costs, it is difficult to get a profit margin. We are really suffering from this. To get new orders we have to raise the prices. Otherwise, we won’t be able to survive.”