ADB says inflation in Asia to rise, may endanger growth

ADB says inflation in Asia to rise, may endanger growth
16 June, 2008

(AFP) - Inflation in Asia will hit 5.1 percent in 2008 due to surging food and fuel prices and could threaten economic growth in the region, the Asian Development Bank warned Sunday.

"Our projection for inflation for Asia for 2008 is 5.1 percent which is already a 10-year high," Rajat M. Nag, managing director general of ADB told reporters at a two-day World Economic Forum on East Asia here.

"This was a projection we did in April. We are revising our projections. My feeling is the projections will go even higher," he added.

Rajat said Asian monetary and fiscal authorities should "recognise inflation as a very major concern" and hinted that they should raise interest rates.

Inflation "can endanger growth in Asia," he said, adding that "central banks should take all steps, including looking at rates as what India has done quite appropriately."

India's central bank on Wednesday raised a key short-term borrowing rate by a quarter percentage point to 8.0 percent to battle inflation that analysts say may be headed to double-digit levels.

Rajat said if Asian economies "do not tamper the inflationary rate which is quite high, you actually will compromise growth. So it is precisely to sustain the prosperity of Asia that we need to focus on inflation," he said.

"Asia has had a very good growth story. We need to focus on inflationary pressure, otherwise the growth story will be endangered," he warned.

Rajat also said that if inflation was not tamed, it would hurt Asia's poor.

"Inflation is the worst form of taxation on the poor. Inflation hurts the poor much more than it hurts the rich," he said.

He added that to reduce the impact of the rise in food and fuel prices on the poor, Asian economies should launch cash income support programmes for the poor, but not a general subsidy.

"A general subsidy is not fiscally sustainable and it does not help the very people that need help," he said.

Rajat urged Asian governments to re-launch the "green revolution" programmes that existed back in the 1960s to increase food output since prices would climb further.

"We need to recognise that there has been some structural changes in food and fuel. The era of cheap food is over, so we need to adjust to higher price regime. There has to be a lot of effort to increase food productivity," he said.