On November 4, 2011, NPR’s Planet Money did a “blast from the past” podcast reviewing the course of events that led to the rice panic of 2007 and its eventual end. From India’s decision to ban rice exports to hoarding across Asia to corrupt government manipulation in the Philippines of a then vulnerable rice market, we get to reminisce about how rice prices doubled ad then almost doubled again in just four months. The panic finally ended after economists convinced the U.S. to allow Japan to sell its stockpile of rice that it maintains as part of a trade agreement that forces Japan to buy rice from the U.S. it does not want. Ironically enough, the rice was never sold but the psychological impact of the announcement was enough to end the hoarding and bring the market back to a semblance of sanity.
A truly fascinating tale of a completely avoidable bubble in the price of rice.
Thanks to improvements in crop production, monetary tightening, a slowdown in economic growth rates, and currency appreciation, the trend now appears to be heading down for core and headline inflation in Asia. Different countries are wrestling with different problems, but, overall, economists and analysts quoted in “Food Inflation Begins to Moderate in Asia” seem to be getting optimistic about the prospects for inflation.
The article includes some statistics on the huge difference in price trends on various food items in India:
“The cost of bananas in New Delhi is up 50 percent over the year, while paneer – a form of cottage cheese – has risen 26 percent to 145 rupees per kg.
Yet other food prices are falling. Staples such as tomatoes and potatoes, which peaked earlier in the year at levels that caused great stress to poorer families, have seen prices moderate in recent weeks.”
Looks like Singapore is now feeling some inflation pressure. The small island nation raised its inflation forecast for 2011 and may be forced to raise interest rates.
Bloomberg reports in “Singapore Raises 2011 Inflation Forecast to 3%-4% After Record Expansion“:
“Consumer prices may climb as much as 4 percent this year while exports may rise 10 percent, the trade ministry said today. The economy expanded a revised 14.5 percent in 2010, with gross domestic product growing an annualized 3.9 percent in the three months to Dec. 31 from the previous quarter, it said.”
Bloomberg also quotes Ravi Menon, the permanent secretary at the trade ministry:
“The key macroeconomic challenge this year will not be growth but dealing with emerging cost pressures…At this juncture, we expect these pressures to be relatively contained although there may be some pockets of tightness that we should continue to be watchful for.”
2010 brought many happy returns to the Indonesian stock market with gains of 46%. So, Monday’s 4.2% drop capping a 3-day drop of 8.1% is still technically a very minor correction. (The stock market has also essentially stalled out for the past 3 months).
More importantly, observers are citing growing inflation fears for the drop in the Indonesian stock market. The Indonesian Central Bank decided to hold interest rates steady for now, but economists and analysts seem to expect a rate hike program to finally begin after rates stayed at record lows for 17 months. As always, the trick is whether monetary authorities can act swiftly enough to stem the looming tide of inflation in the country. The monetary mentality has to rapidly switch from recovery to constraint.
For more details on this story see “Indonesia Stocks Tumble Most in Two Years on Inflation Concern” in Bloomberg.