Asian central bank officials warned Tuesday that more interest rate hikes may be needed to help nations dampen inflation rates surging to their highest levels in years on rising oil and food prices. “There's an urgent need for countries to contain emerging inflationary pressures,” Made Sukada, director of monetary policy research at Indonesia's central bank, said at a seminar in Singapore. “Central banks need to prepare for further monetary tightening going forward.” China, Indonesia, the Philippines and other countries throughout the region have grappled with decades-high inflation rates in some cases, as companies pass on soaring energy and food costs to consumers. That in turn has spurred workers to demand higher salaries - a scenario bankers and analysts say could lead to a wage-price spiral. “It's easier to prevent inflation from escaping than to recapture it,” said Cyd Tuano-Amador, managing director of the Philippine central bank. “I'm not telegraphing our actions, but policy responses via a rate hike will always be on the table.” The Philippine annual inflation rate jumped to 11.4 percent in June, a 14-year high, prompting the central bank to raise its benchmark lending rate 0.5 percentage points on July 17, following a hike of 0.25 percentage points in June. Indonesia has seen inflation shoot to 11 percent and expects prices to rise as much as 12.5 percent this year, Sukada said. The Indonesian central bank has raised its benchmark rate 0.25 percentage points each of the last 3 months. Thailand, India and Vietnam have also recently raised rates. “The longer inflation stays high, the greater the risk of it becoming entrenched,” Lehman Brothers said in a research report on July 18. “We think it makes sense for Asian central banks to start tapping more on the brakes - in order to avoid having to slam on them later.” Some analysts have criticized Asian central bankers for being too slow to recognize the threat posed by soaring oil and food prices. “When these shocks began to hit, monetary conditions were simply too accommodative to contain the inflation pressure,” said Tim Condon, chief Asian economist at ING bank. “We're seeing inflation around the region at levels that we haven't ever seen in some cases.” The Asian Development Bank, a regional multilateral lender, called for more rate hikes, even if such moves slow economic growth. “Asian central bankers have been behind the curve,” said Jong-Wha Lee, the head of the ADB's office of regional economic integration. “There's still time, but there hasn't been enough tightening yet. Inflation is the big risk in Asia right now.” In a separate report released Tuesday, the ADB said rising food and energy prices and volatility in financial markets are likely to ease this year's growth across emerging East Asia to 7.6 percent from 9 percent last year. The Manila-based lender said inflation was expected to rise to 6.3 percent for the region, more than double the average rate of the past 10 years, straining the budget of average households in a region where half of monthly home expenditures is for food and fuel. Tuano-Amador defended the Philippine central bank's decision not to raise rates earlier in the year. “We thought we were appropriately prudent,” she said. “All the talk about being behind the curve is really Monday morning quarterbacking. Hindsight is always perfect.” Central bank policymaking has been complicated by the rapid surge in oil prices, which have jumped about 75 percent in the past year, and uncertainty over how much a slowing US economy will impact Asian growth, said Khor Hoe Ee, assistant managing director of Singapore's central bank. “This sudden burst of inflation has been a bit of a surprise,” Khor said. “Even a year ago, despite higher oil prices, most central banks still did not see the inflation shock coming. But we're starting to see a policy response from around the region.” Singapore's annual inflation rate rose to 7.5 percent in May, although Khor said it would likely drop back by the end of the year.
