Inflation's bark proves worse than its Asia bite
When the Asian financial crisis broke last year one thing everyone was certain it would bring was a roaring monster of inflation.
But a year has passed and that monster has so far turned out to be a pussycat, not quite a kitten but certainly no snarling tiger either.
As the chart below shows there are three ways of looking at it. The line starting from 1991 and showing the highest figure today is the average rate of inflation in Asia excluding the mainland. It is weighted by 1997 gross domestic product in US dollar terms. The chart excludes Japan.
At 7.8 per cent it is sharply up from a year before but still below the peak of 1991. Most commentators last year expected it would be well into double-digit figures by this time but it has not been.
The second line represents what overall Asian inflation would have been if Indonesia was excluded from the figures. This takes the average down to 5.2 per cent. The third line, the lowest, represents what it would have been if Indonesia was taken out and the mainland included. This produces a figure of 1.3 per cent, a record low for Asian inflation.
Mix and match the figures as you please. Whatever you do you will find that for Asia overall the big inflation doomsday scenario has not materialised.
Now look at the table showing the latest inflation rates, country by country. Indonesia immediately stands out with an inflation rate last month of 56.7 per cent.
Thailand is also high at 10.7 per cent but the Philippines at 9.2 per cent shows an inflation rate roughly in line with high historical levels.
The truly noteworthy feature of this table, however, is that inflation in the mainland as well as in Hong Kong, Singapore and Taiwan has continued down over the last year, not up.
All of this shows several things. The first is that although inflation is traditionally regarded a good leading indicator of economic overheating and coming recessions, it has proved not to be so. The collapse last summer came at the same time that inflation in Asia stood at a 10-year record low. So much for this supposedly reliable leading indicator.
The second is that if the inflation threat was any reason to sell down Asian markets it is time to buy again in most countries. Indonesia can be excluded from this and perhaps Thailand and the Philippines but elsewhere there is plenty of room for the authorities to ease monetary conditions insofar as an inflation threat was any reason for tightening them.
The third is that the rapid opening up of Asian borders in recent years to trade and capital flows - one of the reasons for the collapse last summer - has also increasingly made Asian inflation subject to inflation trends elsewhere.
US dollar inflation is down and Asian trade is mostly denominated in US dollars. It may not have made much difference twenty years ago but it does now.
Perhaps it is too early to declare the inflation threat over in most Asian countries but the signals so far clearly point that way.