Australia inflation surprise, China rates highlight Asia price pressures

Wed Oct 23, 2013 6:16am EDT
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By Ian Chua and Kevin Lim

SYDNEY/SINGAPORE (Reuters) - Inflation fears heightened in Asia on Wednesday as price pressures in Australia intensified and as China's short-term interest rates shot higher on concerns the central bank may soon tighten liquidity.

The pick-up in price pressures could limit the ability of policymakers to inject more stimulus if needed as a weak global recovery dampens demand for the region's exports, weighing on economic growth.

Australia's quarterly headline inflation sped up to a much higher than expected 1.2 percent in the third quarter from 0.4 percent in the second, data showed, reflecting in part a spike in fuel prices.

The outsized move jolted markets, sending the Australian dollar to a 4-1/2-month high and prompting traders to trim chances of another interest rate cut this year.

Australia's data came a week after neighboring New Zealand, India and China all reported inflation was running hotter than expected.

Super-loose monetary policies in the West have sparked a wash of speculative "hot money" flows into Asia, aggravating price pressures and threatening to create potentially destabilizing asset bubbles in some countries.

Strong domestic demand has also spurred prices of everything from food to fuel. India, Indonesia and Malaysia have all cut state fuel subsidies in recent months in a bid to reduce their debt burdens, sending living costs still higher.

Selena Ling, head of treasury research at Oversea-Chinese Banking Corp, Singapore's number two lender, said there was an "upward creep" in inflation across the region.   Continued...

The Sydney Harbour Bridge casts a shadow next to the Sydney Opera House and central business district (CBD) as boats make their way along the harbour in this picture taken July 21, 2013. REUTERS/David Gray