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Inflation monster still muzzled in Asia

SINGAPORE: Inflation looks set to be less of a threat in Asia this year than previously feared, according to the latest quarterly Reuters survey of 129 independent economists.

Forecasts for inflation in Hong Kong, Singapore, Indonesia, the Philippines, South Korea and Australia were all revised downwards from the last poll conducted in December.

Economists expect price pressures in New Zealand, Taiwan, Thailand and Sri Lanka to be higher than previously predicted, though in most cases the uptick is seen as relatively mild.

Currency appreciation, persistent slack in the economy, a slower than expected recovery in consumer demand and improved productivity contributed to the still subdued inflation outlook.

But many economists cited rising global oil prices as a threat and predicted a pick-up in inflation in 2001.

Indonesia's year-on-year inflation rate is now forecast at 5.63 percent at the end of 2000, compared with a projection of 7.16 percent in the last poll.

Higher tariffs on some commodities and the reduction of subsidies on fuel and electricity as the government aims to manage its burgeoning deficit were likely to spark price rises.

But expectations of a gradual strengthening in the rupiah should help keep a lid on inflation, analysts said.

The central bank has said it expects inflation of up to seven percent in 2000, but Indonesia's budget for fiscal 2000 (which runs from April to December) assumes a rate of 4.8 percent. Last year, inflation stood at 2.01 percent.

Consumer prices fell 0.8 percent year-on-year in February.

PHILIPPINES, INDIA OUTLOOK IMPROVES

Inflation in the Philippines is expected to post an average monthly rise of 5.93 percent compared with an end-2000 forecast of 7.6 percent in the last poll.

The average annual inflation rate in 1999 was 6.6 percent.

Analysts said the increase in world crude prices would translate to higher transport and electricity costs and wages, but ample food supply and sluggish consumer demand should temper inflationary pressures.

India's inflation rate, measured by the wholesale price index, is now seen at 3.3 percent for 1999/2000 (April-March) against forecasts of 5.09 percent in the last poll.

Inflation has remained near three percent for most of the year, mainly because of a higher base in 1999, and analysts do not expect a sharp pick-up in prices next year as the economy continues to benefit from productivity gains.

Hong Kong is expected to remain in deflation, with prices seen contracting at an average year-on-year rate of 0.44 percent, compared with the previous forecast for a 0.52 percent rise.

"The collapse of property prices and rents has enabled businesses to cut costs and deliver goods and services at lower prices to consumers," said Morgan Stanley Dean Witter in a research report.

"Accelerated deregulation and increased competition in the service sectors will bring prices down further this year."

The government has projected an average one percent drop in Hong Kong's composite consumer price index this year.

Even Korea - where the threat seemed most acute given its strong economic comeback and dependence on oil imports - is not seen facing higher inflation prospects.

Economists polled by Reuters left their estimates for 2000 inflation little changed from the last poll, which produced an average forecast of 3.48 percent.

But nine of the 10 analysts surveyed expect inflation growth this year to top the Bank of Korea's 3.1 percent forecast.

The central bank raised its target for the country's key short-term interest rate last month, but stressed that it was not motivated by any sign of pending price pressure.

Korean authorities have shown a clear reluctance to hike rates further as domestic financial markets remain fragile, but most analysts expect the central bank to eventually sanction a monetary tightening via a stronger exchange rate.

CHINA PRICES TO PICK UP

Chinese consumer prices are seen rising 0.6 percent this year, but the retail price index, China's benchmark inflation measure until this year, is expected to fall 0.7 percent.

The government has said it aims to keep CPI, which is broader than the RPI as it includes services and rents, at around one percent this year. The RPI has been negative since October 1997.

Economists said deflation should subside as consumption recovers after successive interest rate cuts and sustained government stimulus.-Reuters