As waves of capital inflow head towards Asia, governments act to prevent real estate and other prices from spiralling out of control.
Asia confronts the inflation challenge, GERARD LYONS
...The inflation challenge is greater in Asia for many reasons. Last year the region grew strongly, and the slack in Asian economies is far less than in the West.
Strong domestic demand allows retailers and producers the opportunity to pass on higher costs and to sustain or boost their margins by raising prices. Whilst this is a concern, rising wages and good labour market conditions are allowing people to pay higher prices. This is akin to a wage-price spiral, albeit in the early stages, but it can get out of hand if not addressed quickly enough.
Then there is the very issue of food and energy prices itself. Higher prices of these staples hit hard into spending and can cause problems, in particular for the poor and those on low incomes. Thus, in many countries, there are complex subsidies in place in areas such as food, fertilizer and fuel.
These subsidies need to be phased out, but it is difficult politically to do this. Although subsidies may ease the pain for some, they complicate the inflation picture, and often add to it.
To these domestic inflation drivers, there is the additional challenge for Asia and for many emerging regions of how to cope with capital inflows.
This came to the fore as an issue last year, when money flooded in. Although less of a concern this year, this may soon change.
This has been called "America's year" by some investors, as the third year of a presidential term is often good for the US equity market. That optimism has been enhanced by the additional stimulus measures America received at the start of this year.
But now, as policy stimulus wears off, and as debt still needs to be repaid, greater challenges lie ahead. Add in the debt crisis overhanging parts of Europe, and it is easy to see why capital may start flowing back to emerging economies.
This suggests that the problem of how to absorb capital inflows will again become a key concern for Asian countries.
Often challenges are most apparent in property prices. When money flows in from overseas, it seeks out a home, and all too often this is in equities, or in real estate, adding to existing domestic pressures.
A recent analysis by Standard Chartered of Asian property prices shows the pressure points. That study used the idea of traffic lights to put countries into green, amber and red categories. For those in red, prices are already too hot, and policy-makers must stop them. Singapore, Hong Kong and Beijing top this "property bubble-o-metre''. For Hong Kong and Singapore, this reflects the focus of both economies on the exchange rate, resulting in interest rates being too low for domestic needs. Thus, in both places, there is increased use of macro-prudential measures.
These are targeted policies aimed at curbing property prices and can include, amongst others, controls on loan-to-value ratios and curbs on buying multiple properties
China, too, is making use of such measures, as it faces an inflation challenge in its first-tier cities. Hence this year China is experimenting with property taxes. Overall, though, property prices across China are in the amber territory, as indeed they are in many countries across the region.
Thus Asia faces inflation challenges on two fronts: in asset prices, especially in property and equities; and in general terms, across the whole economy, impacting everyone. Central banks across the emerging world need to avoid the lethal combination of cheap money, leverage, and one-way expectations. If they don't, inflation could take off, initially in property but then across the wider economy. This justifies recent policy tightening. It also supports the case for stronger Asian currencies, as economic fundamentals are good and as a way of curbing imported inflation...
Gerard Lyons is chief economist and group head of Global Research at Standard Chartered Bank.
(Source: Bangkok Post, Asia confronts the inflation challenge, GERARD LYONS, 25-05-2011)
inflation - the level of prices rising in the economy as a whole (See Economist Glossary) ภาวะเงินเฟ้อ
confront - confront a difficult situation, confront a problem, accept the fact that a difficult situation exists and try to find solutions to the problem
challenge - something that needs a lot of skill, energy and determination to deal with or achieve สิ่งท้าทาย
domestic - within the country ภายในประเทศ
demand - the need and desire to buy goods and services by households and businesses
opportunity - a situation when it is possible to do something that you want to do (See glossary)
sustain - to keep and continue at the same level; to maintain รักษาไว้
boost - to increase; to strengthen เพิ่ม; ทำให้มีกำลังมากขึ้น
concern - a worry ความกังวล
akin to - similar to, much the same as
wages - the amount of money earned per hour by a worker ค่าจ้าง
spiral - a line that winds around and around with each curve inside the previous curve
wage-price spiral - a situation in the economy in which prices rise, so workers demand higher wages which causes prices to rise even more and workers to ask for wage hikes once again and so on, causing inflation
in the early stages - at the beginning, at the start
get out of hand - go out of control
albeit - although, though
X albeit Y - X even though Y, X is true but Y is also true (which makes Y less important)
address a problem - deal with a problem, try to solve a problem
issue - a subject that people discuss or argue about ประเด็น
subsidies - when the government pays part of the cost เงินช่วยเหลือ เงินสนับสนุน
fertilizer - food for plants, chemicals or natural things such as manure that farmers put in plants to help them grow
fuel - to make something increase or become worse ทำใ้ห้รุนแรงขึ้น
staples - the most important foods that people eat everyday (in Asia rice, in the west wheat in bread)
hit hard into spending - have a bad negative effect on spending (reducing incomes in the economy)
phased out - ended
ease - to make less severe บรรเทา, ทำให้ง่าย
ease the pain - reduce the pain
complicate - make more difficult to understand, deal with and work with
complicate the inflation picture - make the inflation situation more difficult to manage and deal with
domestic inflation drivers - things or factors causing inflation within the country
cope - to deal successfully with a difficult situation (make it manageable, not always solve problem) รับมือ (See glossary)
capital - money invested in businesses (See glossary)
capital inflows - investment money coming into the country from other countries (sometimes for a long time, sometimes only for a short time)
came to the fore - became important
money flooded in - large amounts of credit, loans and investment money entered the country
term - a period of time a politician or other official holds their job ช่วงเวลาการดำรงตำแหน่ง
presidential term - the period of time that a US president serves in office (four years)
equity - the value of a company's stock shares, money for a business that comes from owners, not borrowed money (debt) เงินลงทุน ที่มาจากการระดมหุ้นของหุ้นส่วน และผู้มีกรรมสิทธิ
equity market - the stock market
enhanced - improved, made better
measures - actions taken to deal with a problem มาตราการ
stimulus measures - temporary increases in government spending (decreases in taxes) to get the economy moving again after a recession
optimism - a feeling that the future will be better, a feeling that good things will happen in the future มีทัศนคติที่ดี
policy - a plan of action to guide decisions and achieve outcomes (See Wikipedia)
wears off - the effect of some action disappears over time
debt - an amount of money that you owe หนี้
challenges - new and difficult tasks and problems to solve, that will require effort and determination
lie ahead - will exist in the future (example: a wonderful life lies ahead for you)
crisis - an urgent, difficult or dangerous situation วิกฤต
hang - ห้อย, แขวน
X hangs over Y - X is hanging above Y (and could drop and fall on Y, damaging Y)
X overhanging Y - same "X is hanging above Y"
debt crisis overhanging parts of Europe - a danger that could turn into a crisis at any time
emerging economies - economies that are not yet fully developed (such as Thailand, Philippines, Brazil, etc)
absorb - to take in something from the outside ซึมซับ ดูดกลืน
key - important คนสำคัญ
apparent - clear; able to be seen or understood ซึ่งเห็นได้ชัดว่า
property - quality คุณสมบัติ
equities - stock shares in a company that represent partial ownership of the company หุ้น
pressure - force causing change การกด
pressure points - places where there is pressure
traffic lights - the changing coloured lights that tell cars to stop at intersections and control traffic สัญญาณไฟจราจร
amber - the yellow colour of a traffic light
bubble - asset bubble, when the value of assets (stocks, real estate, etc) increases to very high levels (about true long-run sustainable market values) through speculation and investment fever, and then one day crashes when everyone suddenly loses confidence in the market (this happened in Japan and resulted in the long recession of the 1990s) (See Wikipedia)
property bubble - an asset bubble in the real estate markets of a country
pressure - when people are being pushed or forced to so something
traffic - the number traveling to a place during a period of time (people, aircraft, ships, trains, cars, trucks, etc.) ความหนาแน่นของจำนวนคน หรือยานพาหนะในช่วงเวลาใดช่วงเวลาหนึ่ง
X reflects Y - thing X which you can see, actually represents Y which you cannot see (X shows Y)
focus - the main thing it is concerned with ให้ความสำคัญ
interest - payments made for the use of another's money for a period of time
interest rate - the percentage of a loan that must be paid to the lender eacsh year as a fee for using their money
exchange rate - how much of one currency that another currency buys (example: baht-dollar exchange rate is the amount of baht needed to buy one dollar, around 30 to 33 nowadays)
targeted policies -
loan - an amount of money that a person, business or country borrows เงินกู้
curbs on Y - restrictions on activity Y, rules that limit or stop people from doing activity Y
first-tier - the most important cities in the country
experimenting with - testing to see if it works
property tax - a tax on the value of real estate (land, buildings, homes) that must be paid each year to the government
in the amber territory - in the yellow light range
asset - something owned by a person, company etc., particularly money and property ทรัพย์สิน
in general terms -
impacting everyone - having an effect on everyone's life
central bank - the main government bank of a country that sets interest rates to keep the inflation rate within a target range (inflation targetting monetary policy), controls the availability of loans and credit and the money supply
lethal - deadly, very dangerous and able to kill you เป็นอันตรายถึงชีวิต
combination - the mixture you get when two or more things are combined การรวมกัน
cheap money - interest rates are low, so cost of borrowing is low
leverage - using borrowed money to buy assets (higher leverage = higher percentage of borrowed money used in purchase)
expectations - การคาดคะเน
one-way expectations - when people in the economy believe that the economy will only go up in the future and never go down (the end of the business cycle, this is not a reasonable belief, since there is always a business cycle)
inflation could take off - inflation could start to increase (like an airplane taking off)
initially - at first, at the beginning ในเบื้องต้น
X justifies Y - X is a good reason for doing Y
policy tightening - (monetary policy) increasing interest rates to reduce credit (loans) in the economy which will control inflation but also reduce growth perhaps
supports - things that help you
stronger Asian currencies - more valuable Asian currencies, Asian currencies that have appreciated (making Asian exports more expensive)
economic fundamentals - the underlying health of a company or economy (that will determine whether it is profitable and survives in the long-run) ที่สำคัญ ที่เป็นตัวกำหนดความมั่นคงของบริษัท
imported inflation - inflation that enters the country from other countries through some channel (examples: higher oil prices, increased loans and credit from foreign sources expanding the money supply)