Inflation remains key challenge in emerging Asia

SINGAPORE, March 23 (Xinhua) -- Official statistics released on Wednesday showed that Singapore's consumer price index inflation moderated slightly in February, but inflation, like in most other economies in emerging Asia, remains a key challenge at a year-on- year rise of 5 percent.

The inflation rate for February represented a slight moderation from a two-year high of 5.5 percent in the previous month. It was also lower than the market expectations of 5.4 percent.

Inflation in Singapore has been picking up on the back of a strong economic rebound, mainly due to higher costs of transport, food and recreation and others. The December CPI inflation rate was 4.6 percent in December. The Singapore government recently raised its CPI forecasts by one percentage point to 3-4 percent for 2011, saying that inflation is expected to rise further to 5-6 percent in the first few months of the year.

The Monetary Authority of Singapore, the central bank, has allowed the Singapore dollar to appreciate against a basket of foreign currencies in an attempt to rein in inflation, as Singapore imported almost all the necessities in daily life. The local currency has tested new highs against the U.S. dollar recently.

The trend was in line with that in emerging Asia.

Headline inflation came in at 4.9 percent in China in February, slightly higher than expected.

In South Korea, the latest CPI inflation was at 4.5 percent on rising food and commodity prices, though economic growth was robust with a projection of 4.5 to 5 percent for 2011, allowing some room for tightening ahead.

"The key challenge in the near term is to contain inflation, which has risen above the authorities' target range," Alicia Garcia Herrero, chief economist for emerging markets of BBVA Research, said in a report on Wednesday.

Analysts said they expected the central banks to tighten monetary policies further ahead.

But it is not all easy, given the still weak external demand the excess of liquidity flowing into these countries.

Moody's Analytics said inflation is a growing worry because there are actually two distinct components, namely demand pressures and commodity prices. In some cases, particularly in emerging markets, it resulted mainly from excess demand generated by economic overheating. In other countries, inflation is mainly an external force brought about by rising international commodity prices, particularly for food and energy. Even in countries where growth is moderating toward more consistent rates, a significant portion of the current inflation is imported from abroad.