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Inflation Pressures May Ease In Asia

Asian countries this week have been reporting the highest inflation in decades but slowing oil and food costs may help ease price increases by the end of the year.

SINGAPORE (AP) -- Asian countries this week have been reporting the highest inflation in decades but slowing oil and food costs may help ease price increases by the end of the year.

Malaysia said Thursday its annual inflation rate jumped to 7.7 percent, a 27-year high, while Vietnam said prices soared 27 percent over the last 12 months, the biggest increase since 1991. Singapore's central bank raised it inflation forecast for 2008 by 1 percentage point to between 6 percent and 7 percent after announcing earlier in the week inflation remained at a 26-year high last month of 7.5 percent.

The main culprit in all three countries was food and fuel costs as crude oil futures have risen about 70 percent in the past year. Oil has fallen, however, from a record high earlier this month, and analysts say easing commodities prices should help slow inflation in the region.

"The stabilization of prices for oil and food, especially rice, should be a positive to help central banks control inflation," said Tai Hui, head of research for Southeast Asia for Standard Charter Bank in Singapore. "Oil and food are the real swing factor for the inflation outlook in Asia over the next 12 to 18 months."

Some Asian governments have attempted to shield consumers from the impact of higher prices with food or fuel subsidies, only to see prices surge when they can't afford to keep the subsidy in place.

"In economies that were open to market forces, inflation numbers should start to ebb with commodities prices coming off," said Philip McNicholas, an economist with research firm IDEAglobal in Singapore. "But countries like Malaysia, India and China, which were fairly heavily subsidized, it might stay high."

Central banks in Indonesia, the Philippines, Thailand, India and Vietnam have all recently raised lending rates in a bid to ease inflation pressures. Philippine central bank chief Amando Tetangco hinted Wednesday that interest rates may rise further to help control inflation, which rose to a 14-year-high of 11.4 percent in June.

Analysts pressure is mounting on Malaysia's central bank raise rates at its next monetary policy meeting on Friday.

Policymakers, however, have been reluctant to aggressively boost borrowing costs to stamp out inflation for fear of undermining economic growth, Hui said.

"Most countries are hiking rates moderately as a gesture to show that they are determined to fight inflation," Hui said. "Central banks have to have one eye on growth."

Some governments have postponed spending projects in an effort to ease supply bottlenecks that are creating shortages and higher prices.

Vietnam postponed more than 5,000 projects with total investment of 35 trillion dong (US$2 billion), local media said. And Singapore said earlier this week it would put off over a US$1 billion of construction investment to help alliviate materials shortages, the third time since November the government has delayed spending in the construction sector.

Still, policymakers and analysts will be watching commodities prices closely to anticipate inflation pressures in the coming months.

"The upside inflation risks for the region are always going to lie with food and fuel," McNicholas. "If they continue to slide, you should see some easing going forward. If they spike, all bets are off."

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