High inflation in Asia may hinder the region’s anti-poverty gains

from Media Global

By Shipra Prakash

High inflation in Asia may impede the progress the region has made over the last 20 years and limit gains against poverty, according to the Asian Development Bank (ADB).

Two thirds of the world’s poor live in Asia. With soaring inflation, it is they who are paying the highest price.

In China, wages cannot keep up with the pace of inflation, and as a consequence living standards have fallen.

The China Labor Bulletin (CLB), an organization that works to solve labor disputes, strikes, and protests, reports that due to increased inflation, Shenzen authorities in July will raise the minimum monthly wage. In Central Shenzhen, the minimum wage will increase by 17.6 percent, from 850 Yuan to 1,000 Yuan, about $145. The minimum wage in suburban areas of the Special Economic Zone will increase by 20 percent, from 750 Yuan to 900 Yuan, about $131. But the CLB stated that “next month’s increase will be barely enough to cover inflation.”

It is not difficult to understand why. With the World Bank forecasting an average consumer price inflation rate of seven percent this year in China, the rise in food and energy prices comes as no surprise.

But inflation is by no means exclusively limited to China. Singapore, Thailand, the Philippines and Indonesia face inflation rates between 7.5 percent and 11 percent. In Vietnam, inflation stands at a staggering 25 percent.

According to the International Monetary Fund, two thirds of the consumer price index in Asia was comprised of foodstuffs in 2007. The figures for 2008 are sure to be of even greater concern.

Inflation in India has reached more than 11 percent. Only a year ago, the figure was 4.28 percent.

This month the United Nations Children’s Fund (UNICEF) reported that in the state of Madhya Pradesh in India, government supplementary programs aimed at feeding the poor are under threat because of inflation and food prices.

Madhya Pradesh has the highest levels of child malnutrition in India, and now a bad situation has become worse.

“Due to eroding purchasing power, households will buy less food and spend less on health and education, all resulting in hunger and malnutrition among those who are already vulnerable,” Dr. Suresh Chandra Babu, Senior Research Fellow at the International Food Policy Research Institute (IFPRI), said in an interview with MediaGlobal.

“Not only will the number of poor increase, the depth of poverty will increase among those who are already poor. Thus the progress made in the past in poverty reduction could be undone,” he added.

Yet India has attempted to secure domestic rice stocks and control food prices. In March of this year, the country raised its minimum price for the export of rice.

India is the second largest rice producer in the world, and countries reliant on imported rice will now have more trouble meeting their needs.

The cyclone that hit Bangladesh last year destroyed nearly all of its rice harvest, and now the country is struggling to overcome rice shortages.

Russia and Argentina, like India, have turned to protectionism to safeguard food supplies for their nationals. Both countries have banned the export of locally produced cereals.

Such protectionism only pushes food prices higher. Still, the blame for the food crisis cannot be solely laid at protectionism’s door.

Rising energy costs have also pushed the price of food up, and an international yelling match has begun between oil producers and consumers over why energy prices are so high.

Saudi Arabia contends that speculation on oil futures, and not insufficient supply, is the reason for high oil prices, while consumers respond that it is the other way around.

Still, Saudi Arabia has announced that it will raise oil quotas to 9.7 million barrels by the end of July, an increase of about 500,000 barrels since May.

But Victor Shum, a Singapore-based energy analyst for Purvin and Gertz, an energy consulting firm, said he believes that increasing oil quotas will have little immediate effect.

“We generally expect it to have a minimal impact on oil pricing in the short term, but long term investment in capacity will help relieve the supply and demand pressure and help lower pricing,” he told MediaGlobal.

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