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Battling inflation in Asia

Average inflation rates for key Asian countries for 2010 varied greatly, ranging from extreme lows in Japan (-0.76%) to extreme highs in India (12.8%). India’s excessive inflation is attributed to an increase in prices of both manufactured goods and food (due to poor harvests). However, monthly inflation rates have been following a downward trend with monetary tightening.

China and Indonesia also recorded higher than average inflation levels of 3.2% and 4.96%, respectively. January 2010 saw the inflation rate in China reach a low of 1.5%, but it steadily rose during the year, reaching 5.1% in November. Higher food prices due to bad weather, soaring property prices, and high money supply were key inflationary components ( In Indonesia, the surge in the price of rice and other foods, as well as higher electricity tariffs were the key catalysts.

In general Asia experienced a fairly stable inflation regime in 2010. Malaysia averaged close to 1.67%, Hong Kong was at 2.35%, Singapore 2.66%, and South Korea 2.96%.

Increasing food and oil prices have been primary drivers of inflation in Asia. Policy makers have had a difficult task on their plate, simultaneously dealing with inflationary pressures, future growth uncertainties, and soaring inflows of dollars. It has been argued that countries must decide between crippling oil subsidies and passing on the burden to consumers ( Economic powerhouses such as China and India are looking to tighten monetary controls by increasing interest rates to cool overall demand. Thailand and South Korea, among others, are following suit. – Kanishk Verghese