Hot Features
Premium
Register for real-time alerts, custom portfolio, and market movers
It looks like the “tightening” of monetary policy is already around the corner. “Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the committee to remove policy accommodation at a faster pace than they currently anticipate,” according to minutes of the Jan. 25-26 Federal Open Market Committee meeting released Wednesday.
According to the Fed’s forecast, the growth rate of the consumer price index (PCE index) will slow to 2.6% in 2022, down from 5.8% in December last year. Next year, the weakening of inflation will continue, causing the index to fall to around 2%. The next FOMC meeting is scheduled for March 15-16. It will be accompanied by Powell’s press conference and the release of updated economic forecasts. The market assumes that there is a 44% chance that the cost of credit will rise 50 basis points in March. At the same time, it is estimated that there is a 55% chance that the interest rate will rise by a total of 75 basis points in the next two meetings (March and May).
Asia, meanwhile, seems to have escaped the inflation trap. China, Hong Kong, India, Indonesia, Vietnam and the Philippines – in all of these countries inflation is actually below the pre-pandemic decade average. Where it is above the 2010-2019 average – Malaysia, Singapore, South Korea, Taiwan and Thailand – it is around 2% or less.
The difference between East and West is due to several factors. Part of the divergence with rapidly rising prices in North America and Europe, as well as in many developing countries outside Asia, has to do with food. Although food prices have risen sharply around the world, the effect has been uneven.
In the 12 months to the end of January, maize and wheat prices rose by 18% and 20% respectively. In contrast, rice prices have fallen by around 20% over the same period. In the Philippines, for example, rice accounts for a quarter of the food share of the consumer price index and a tenth of the total index. In China, in particular, average wholesale pork prices more than halved in the 12 months to January as the African swine fever epidemic that ravaged the country in 2018 began to subside.
However, countries cannot avoid all forms of inflationary pressures. Energy prices are more influenced by global trends than most other goods and services. According to Goldman Sachs analysts, rising energy prices have been the main cause of rising inflation in Asia and have recently accounted for as much as one-third of total growth.
The question now is how the crisis in the commodities market will affect the Asian region. Inventories of some of the world’s most important commodities are estimated to be close to zero, while demand continues to rise, pushing prices up and boosting inflation. Investors are buying everything from industrial metals to energy and agricultural products. This rush for commodities has cornered the futures markets, where contracts for most positions have gone into backwardation.
