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Thursday, May 04, 2006
Energy reduction measures shield Asian nations from rising oil costs
Singapore—Curbs on energy usage and fuel-efficient technology have helped minimize inflation across oil-dependent Asian economies, cushioning the impact of spiraling 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.
Breaking point
“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,” he added.
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.
Measures
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 the Philippines, the government said it will lower oil import tariffs, while President Arroyo announced plans to promote greater use of ethanol and other fuel alternatives.
Worse
In Australia, Treasurer Peter Costello warned that while higher oil prices have so far had only limited impact on inflation, worse has yet to come.
Costello said businesses had so far largely absorbed the higher costs of fuel. He added that it was important that this scenario continue, to avoid “second-round effects” in June quarter inflation.
He has also dismissed suggestions that the government should do more to help Australian households cope with higher petrol prices.
“The idea that there is a countervailing action in the Australian government for every development overseas is not the way we base policy,” he said last Sunday.
“The present situation is no longer sustainable,” said Mahmudur Rahman, Bangladesh’s junior minister for energy. (AFP)
For Bisaya stories from Cebu. Click here. (May 4, 2006 issue)
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