Rising oil price adds to Asia inflation headaches

Rising oil prices present a new inflationary headache for Asia and further complicate the task of policymakers grappling with broader price pressures, an uneven growth outlook and surging dollar inflows. Central bankers in Asia are reluctant to stifle growth by raising rates and are wary of exacerbating yield differentials with western economies and Japan that would further attract potentially destabilising capital flows.

At the same time, rising prices are politically fraught in countries such as India and Indonesia, which must decide between taking the fiscal hit of offsetting fuel price increases through subsidies or pass costs onto inflation-wary consumers.
Inflation is also a big worry for global economic powerhouse China, whose leadership perceives rising costs of living as a threat to social peace and stability.
Beijing’s Christmas day rate rise — its second in two months — underscored how its focus has shifted from nurturing growth to getting prices under control and India is expected to follow, resuming a tightening cycle that has brought six rate increases since March.

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