From export bans to price controls: Asia’s war on inflation targets supply

From export bans to price controls, Asian governments are taking a much more targeted approach than their Western counterparts to curb global inflationary pressure, a strategy that seems to be working, at least for now.

While inflation remains a serious economic challenge in Asia, the measures have, in many countries, helped protect the public from some price hikes and meant that most central banks in the region have not had to raise interest rates as quickly as elsewhere.

The various efforts have also shifted some of the burden of costs from consumers and small businesses largely onto government balance sheets.

“We haven’t seen any weakening in purchasing power,” said Baskoro Santoso, head of investor relations at Indonesian snack maker Mayora Indah.

The company has adjusted prices since the second half of last year but has not seen its business slump, particularly during the Ramadan holiday season, he said.

Indonesia, a country with a history of financial volatility and fluctuating prices, last week increased energy subsidies by $24 billion to contain energy costs, after only lifting a controversial ban on the export of Palm oil.

Although many retailers in Southeast Asia’s largest economy have yet to pass on price increases, household demand remains strong and inflation is within the bank’s target range of 2-4% central.

In South Korea, government caps on electricity bills provide a competitive advantage to global manufacturers like Samsung Electronics and Hyundai Motor and help cushion the impact on household disposable income.

Instead, the caps weighed on power utility Korea Electric Power Corp, which reported a record quarterly loss on soaring fuel import costs, raising the odds of a government capital injection. .

India banned wheat exports this month as a scorching heat wave reduced production and domestic prices hit record highs.

And this week, Malaysia announced it would halt exports of 3.6 million chickens per month from June until prices stabilise. It also operates fuel and cooking oil subsidy mechanisms.

Gareth Leather, senior Asia economist at Capital Economics, said Malaysia’s heavy fuel and transport subsidies likely pushed the country’s inflation down about 1.5 percentage points from just 2.3% in April.

Such intervention in domestic supply is not new to many Asian governments, which are sensitive to public backlash from price hikes, although economic reforms and a stronger emphasis on fiscal discipline over the past decade gave more room to market forces.


By contrast, Western governments have been reluctant to intervene in production chains to drive down the prices of key items such as food and fuel. Inflation in the US and UK has now reached decade highs, squeezing retailer profits and buying power for shoppers.

Walmart, Target and Kohl’s were among major U.S. retailers that reported earnings this month that beat Wall Street expectations by the widest margin in at least five years due to soaring inflation.

The burden of containing prices in Europe and the US has been borne primarily by monetary policy, with central banks in the US, UK and Canada now engaged in aggressive interest rate hike cycles. interest.

This contrasts with a much more favorable political outlook in Southeast Asia, where most central banks have only recently begun a very cautious transition away from ultra-low interest rates, with the tightening expected to be more gradual than in West.

In Thailand, headline inflation has just breached the central bank’s 1-3% target range and the bank’s chief has pledged continued monetary support for the economic recovery.

But while this outlook remains generally favorable for business, with many retailers in Thailand still feeling the pressure as customers refuse to accept price increases, a signage policy alone will not be able to help all sectors.

“It’s during the height of the durian season that you normally make big profits,” said Radavadee Ratanachaiuchukorn, chairman of fresh fruit exporter Chotakkarasup Co. Ltd, referring to tropical fruits.

“But because of the higher costs, we’re barely getting a profit margin. It really hurts us… For new orders, we’ll have to raise prices or we won’t be able to survive.”

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