Asian economies absorb shock of rising oil prices

Singapore, May 3 :

Curbs on energy usage and fuel-efficient technology have helped minimise inflation across oil-dependent Asian economies, cushioning the impact of spiralling oil prices, analysts said.

State subsidies, even if costly, and sound government finances are other factors helping countries absorb the effects of rising consumer prices. For analysts, the biggest unanswered question is at what point will inflation rates buckle under pressure from the record-high oil prices which have gushed past $75 a barrel. So far, consumer and business sentiments have held up.

“Have we seen consumers being hit by sharply higher prices for everyday items? The answer is no,” said Song Seng Wun, a regional economist with CIMB-GK brokerage in Singapore. But “there has to be a breaking point,” he warned, adding that it was “anybody’s guess” when this may happen.

“The reason we are fairly sanguine about it is that it has not derailed growth.” Takahira Ogawa, director for Asia Pacific Ratings at US credit rating firm Standard and Poor’s, said the impact on inflation will depend on the duration of the oil price surge and will differ for individual Asian economies. “Even if it goes up to more than $80, if this will last only for a brief period, regional economies will not be severely affected,” Ogawa said.

“The impact will also depend on certain countries. Countries which have improved their fuel efficiencies will cope better.” Nicholas Brooks, London-based senior economist at Henderson Global Investors, said headline inflation rates in most of Asia have risen due to higher fuel costs, but core prices excluding energy items have remained relatively subdued.

Economies with large current account surpluses, sound fiscal positions and stable net capital inflows are in a better position to cope should crude prices stay above $70 a barrel for a sustained period, Brooks added. These would include Singapore, Hong Kong, China and Malaysia. Countries seen as vulnerable are India, Thailand, the Philippines, Taiwan and South Korea, he said. Regional economies and industries have begun taking measures to cope with higher energy costs by using alternative fuels such as ethanol and adopting measures to cut down on energy consumption.

In Thailand, consumption of gasohol — a mixture of oil and plant fuels — has quadrupled in the last year to hit 3.4 million litres a day in March when total fuel consumption was 70 million litres per day. Manufacturers have also adopted fuel-saving technology and cost control measures. One of the country’s leading exporters of frozen foods, Thai Union Frozen, has raised temperatures in its freezers to lower its energy bill.

High oil prices have pushed up Thailand’s inflation rate to a six-month high of 6.0 per cent in April, but core inflation, which excludes volatile energy prices, has held steady at 2.0-3.0 per cent. Thailand’s energy ministry believes oil prices will be manageable unless the price goes beyond $80 a barrel, in which case the government has considered mandatory conservation measures.

In the Philippines, the government said it will lower oil import tariffs, while President Gloria Arroyo announced plans to promote greater use of ethanol and other fuel alternatives.

Indonesia, which faces higher fuel subsidy bills, said it may impose restrictions on fuel consumption for vehicles, but this would first be discussed with parliament, said National Planning Minister Paskah Suzetta.

In Australia, Treasurer Peter Costello warned that while higher oil prices have so far had only limited impact on inflation, worse was yet to come.