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INFLATION is expected to stage a comeback in Asia by the end of this year, because of the recent rebound in oil and commodity prices.
But consumers worried about soaring prices of the sort seen during last year's skyrocketing inflation can rest easy.
Higher inflation numbers at year end will reflect jumps in oil and food prices that have already taken place, said HSBC economist Robert Prior-Wandesforde at a briefing yesterday on HSBC's macroeconomic outlook for the second half of this year.
After swinging wildly in the first half of the year, oil prices have settled at about US$70 a barrel.
Inflation is likely to hit a low of about 2.5 per cent in September and then jump to 5.5 per cent in March next year for the Asian region, excluding Japan.
Mr Prior-Wandesforde believes central banks are unlikely to raise interest rates to tackle the higher inflation, given that this may endanger any fragile green shoots of recovery.
'We suspect central banks will be slow in responding because of their experience last year,' he said, given the tightening of monetary policies by Asian central banks just before the downturn. 'They have to be confident that growth is on a sustained footing before they make any adjustments.'
For Singapore, which has seen months of gradual deflation, he is tipping a return to positive inflation next year. He predicts year-end inflation at about -0.6 per cent, rising to 1.1 per cent in March. The official government forecast is for full-year inflation this year to come in at between -1 per cent and 0 per cent.
The HSBC economist's projections assume that commodity prices will remain stable for the remainder of the year.
While there is a risk that huge commodity price increases could stunt growth, Mr Prior-Wandesforde said this was unlikely. 'Oil prices will need to rise to US$165 a barrel to offset all the policy easing.'
The lowering of interest rates by governments, to stimulate borrowing and injection of money into their economies to kick-start business activity, has had a positive impact on Asian growth, he added.
Mr Prior-Wandesforde predicted that the region was on its way to a solid and sustainable recovery, which will finally materialise in the third quarter when regional trade begins to rebound strongly. He expects a V-shaped recovery in Singapore - a sharp downturn followed by a speedy upturn - meaning that a second stimulus package is unlikely this year.
CAUTIOUS STANCE
'We suspect central banks will be slow in responding because of their experience last year.'
HSBC economist Robert Prior-Wandesforde, who believes central banks are unlikely to raise interest rates to tackle the higher inflation
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