Asian central banks may need to take more aggressive moves to contain the growing risk of inflation if international crude oil prices remain higher for another two quarters, Lehman Brothers said in a press release yesterday.
Asian central banks have made the right decision in not rushing to hike interest rates, as there is little evidence that oil price shocks have driven the risk of inflation higher, Rob Subbaraman, a senior economist for Asia with Lehman Brothers, said in the report.
"But, the higher oil prices rise, or the longer they stay at current levels, the greater the risk," Subbaraman said.
Oil prices have recently risen above US$50 per barrel, double the average price of US$25 a barrel in 2002, according to the investment bank.
Crude has risen more than US$10 in the past month alone.
In the past, currency depreciation and excess demand have been important sources of inflation in Asian economies excluding Japan, but this time the principle cause is the run-up in oil prices, Subbaraman said.
The consumer price index (CPI), a key gauge of inflation, in the region climbed to near a five-year high to average 4.2 percent last month, from 2.4 percent in January, he said.
"If oil prices do not fall in the next quarter or two, central banks will have significant catching up to do," he added.
Based on the Asian Development Bank's statistics, Subbaraman said if the almost US$20 a barrel increase in the price of Brent crude oil from the first quarter of this year lasts until the first quarter of next year, the CPI for Asian nations excluding Japan could be 1.2 percentage points higher next year.
If the increase is sustained through next year, the CPI could jump 2 percent, he added.
The central bank appears to be proactive in taming future inflationary pressure, raising its key interest rate (rediscount rate) by 25 basis points to 1.625 percent last month.
"The central bank's decision primarily aims to curb inflation speculation," Central Bank Governor Perng Fai-nan (
Perng, however, tried to mute speculation over the effect of higher oil prices, saying the impact on Taiwan's economic growth has been falling over the years.
Taiwan's CPI expanded 1.37 percent in the first eight months over the same period last year and is expected to climb to 1.49 percent for the full year, according to the government's forecast.
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