Inflation Gains in Southeast Asia 
International Herald Tribune
June 6, 1995
Michael Richardson 

Inflation in Southeast Asia, held in check for the last 18 months despite rapid economic growth, is on the rise in many countries, financial analysts in the region say.

There is also concern among officials, economists and manufacturers that if inflationary pressure continues, it will push up production costs and erode the competitiveness of exports.

Financial analysts, however, said Monday that governments and monetary authorities in Southeast Asia were reluctant to lift interest rates at this stage because they expected rates in the United States to come down soon.

"U.S. interest rates are likely to come off," said Mustafa Mohamad Nor, chief economist at the brokerage concern Arab-Malaysian Securities Bhd., citing the release of U.S. statistics last week indicating a sharper-than-expected slowdown in the American economy.

Many Southeast Asian currencies are closely linked to the dollar, and movements in U.S. interest rates are often quickly reflected in the region.

Bankers said that a U.S. interest-rate cut would help stabilize rates in Southeast Asia in the short term, although it would not prevent pressure from building up for increases later in the year.

Malaysia has just launched an anti- inflation drive that includes measures to liberalize food imports, stricter surveillance to prevent profiteering and a warning that more goods will be made subject to price controls if necessary.

Currently, 11 products, including cement, gasoline and sugar are controlled. But in announcing the anti-inflation program, Prime Minister Mahathir bin Mohamad made no mention of monetary or fiscal measures to cool the economy.

Analysts say Thailand, Indonesia, the Philippines and Vietnam are also starting to feel the impact of rising inflation.

Against a background of high growth, economists attribute the rise to wage increases and to higher prices for food, materials for the booming construction industry and goods imported from Japan. The soaring yen has increased prices for many types of Japanese goods.

In 1994, Malaysia's economy grew 8.7 percent after inflation, while Thailand's expanded 8.5 percent. Indonesia's economy grew 7.1 percent, Vietnam's, 8.5 percent and that of the Philippines by 4.3 percent.

Official inflation rates last year were 3.7 percent in Malaysia, 5 percent in Thailand, 8.5 percent in Indonesia, 14.4 percent in Vietnam and 9.1 percent in the Philippines. Many economists are forecasting significantly higher growth and inflation for these countries this year.

In a recent report, the Singapore office of Merrill Lynch & Co. said it expected inflation in both Malaysia and the Philippines to pick up in the second half of the year.

The U.S. securities firm also said that in Indonesia, agricultural products, particularly rice, were in short supply because of drought. It said that rapid increases in minimum wages and higher commodity prices might also add to cost pressures.

In Thailand, increases in wages and agricultural prices - as well as heavy spending on campaigning before general elections in July - could also drive up inflation this year, said Pisarn Manoleehagul, president of Thai Farmers Research Center Co. in Bangkok.

If Thai authorities want to keep inflation "manageable," then "they should consider sacrificing some of the high growth to keep inflation low," he said.

Other analysts, however, said that only in Vietnam did inflation appear to be rising at a dangerously fast rate.

Hanoi conceded last week that Vietnam had exceeded its full-year target of less than 10 percent inflation after only five months. In May, consumer prices rose 1.8 percent from April, sending inflation so far this year to 10.5 percent, or 19.4 percent on an annual basis.

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