Asian countries might start exporting inflation to the world if consumer prices catch up with rising energy costs, adding to global inflationary pressure weighing on growth, the IMF’s Asia-Pacific director said.
“If oil prices continue to increase and producer costs increase, it’s inevitable it’ll eventually come to the price of retail goods,” IMF Asia and Pacific Department director Changyong Rhee said in a Bloomberg TV interview. “In that stage Asia can export inflation further to the world, but it is not yet at that stage.”
Rhee’s comments point to the risk of Asia eventually contributing to a feedback loop of global prices if commodity prices continue to rise.
Inflation is rising faster than expected, even though the IMF expects it to peak in Asia during the second half of this year, said Rhee, whose name has been floated by South Korean media as a potential successor to Bank of Korea Governor Lee Ju-yeol.
The war in Ukraine, coupled with the US monetary policy normalization, would lead to higher food and energy prices for Asians, hurting their real income particularly among poor households, Rhee said.
His remarks came after US Federal Reserve Chair Jerome Powell said the central bank was prepared to raise interest rates by a half-percentage point at its next meeting to curb inflation if needed.
“Higher global interest rates will definitely reduce the growth momentum in Asia,” Rhee said, characterizing the possibility of bigger US rate hikes as bad news for the region. “Higher borrowing costs and exchange-rate pressure will definitely slow down Asia’s recovery.”
Rhee said he has not been approached regarding the upcoming vacancy at South Korea’s central bank.
Whoever succeeds Lee would face rising inflation and household debt among his biggest challenges, and any policy decision would have to be based on data given high economic uncertainties, he said.
Lee leaves at the end of this month and the Bank of Korea might hold its rate decision next month without a governor in place as South Korean President-elect Yoon Suk-yeol has yet to name a successor.
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