Rising Inflation in Asia

Robert Hsu, May 28, 2008

Across the globe, countries and regions are dealing with higher inflation rates. The prices of practically everything -- from food to oil -- are on the rise. And with consumers taking the brunt of it, governments worldwide are taking drastic steps to curb their own nation's increasing inflation. Take India, for example.

India, one of the world's fastest growing major economies, is battling rising prices stoked by consumer demand and high food costs. Matters actually just worsened for India, as the country announced that its inflation rate unexpectedly rose to 7.97% -- the highest rate in three and half years.

This jump in inflation added pressure on the central bank to raise borrowing costs to tame prices. While the bank hasn't lifted borrowing costs yet, I expect that it will have to in the near future.

The high inflation is hitting the Indian people hard, especially the poorer demographic. That's why the Indian government has been making big efforts to slow inflation. One way the government is doing this is by persuading steel and cement makers in the past week to cut prices. The government has also scrapped import duties on edible oils and steel products, and banned the export of cement, pulses, rice, wheat and edible oil. In addition, it has banned futures trading in soybean oil, rubber, chick peas and potatoes to contain prices.

In another move to reduce inflation, India's central bank has asked lenders to set aside more funds twice last month, raising the cash reserve ratio to 8.25%, the highest since March 2001, from 7.5%. According to Bloomberg, the Reserve Bank of India is expected to hike the reserve ratio for a third time this year to control inflation. I think the impact will be limited, because much of the demand for global commodities is coming from abroad. My outlook on India's economy and stock market still remains skeptical.

Also suffering from staggering inflation is China, as the prices there are through the roof. China's consumer prices climbed 8.5% in April from a year earlier, after increasing 8.3% in March. Food prices jumped 22% year-on-year, with meat prices increasing 48% during the past 12 months. And wheat prices have climbed 63% in the past year, while rice, the food staple for Chinese, has more than doubled.

Although rising inflation is putting a pinch on people's wallets, there are still ways to profit from this trend. Join Asia Edge today to find out what companies I recommend to profit from increased inflation.

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