February 28th, 2011
02:59 AM GMT
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Hong Kong, China (CNN) - The Mideast turmoil has oil prices hovering near $100 a barrel again. For Asian economies, an extended period of high oil prices could have a number of knock-on effects, including hurting oil-dependent industries like autos and construction, and depressing exports to the U.S. and Europe.

The real danger though may lie in single word: inflation.

Economies from China to Vietnam to India are already struggling to contain rising consumer prices, especially for staple foods like corn and onions. These costs hit many of society's poorest families, as they struggle to meet basic food and energy costs. They are also taxing government balance sheets, with food and energy subsidies still common place in this part of the world.

In a research note HSBC described the combination of high food prices, gaining core prices, labor tightness and the oil shock "a lethal brew."

HSBC Economists Frederic Neumann  and Sherman Chan warn, "Crude, in fact, is especially tricky: though energy prices do not constitute an overwhelming share of local CPI baskets (food dominates), it can have a pernicious effect on inflation and price expectations."

Part of that unpredictability comes from the intertwined nature of food and oil prices. Higher energy prices also mean higher costs for fertilizer, transport and, this is key, manufacturing. UBS economists have gone as far as to say that "food isn't food," with only 20% of consumer food spending in OECD countries going to the actually agricultural commodities. The rest is labor, energy, transport, and so forth. Measures of food inflation don't just track raw ingredients like wheat or corn, they track processed foods, says UBS Managing Director Peter Hickson.

"When you look at what drives processed food [prices]," says Hickson. "It comes down to labor and it comes down to energy costs."

It's nearly impossible to guess whether the current spike in oil prices is here to stay, with markets fixated on unpredicted political developments in the Middle East. A return to $85 dollars a barrel could be on the horizon.

But if it's not, Asian economies might just get hit where they are already hurting.

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Filed under: Business


soundoff (13 Responses)
  1. Casewithscience

    Inflation wouldn't bite the asian tigers so hard if they just entered a free market phase and let prices (and wages!) rise according to the natural flow of the economy. Currency regulation (China) and market subsidisation (India) make an artificial nightmare which can only end up in disparity between actual costs and market prices. We all know these economies are engaging in these behaviours to improve their competitiveness. Its time to let chinese salaries rise and see if the rest of the world will continue manufacturing in China. I suspect that new manufacturing bases (such as cambodia, Indonesia or even Africa and South America) would open up if China did so, which would be good for the global economy (albeit, bad for China :().

    February 28, 2011 at 4:21 am |
  2. Justina

    Asians became rich too late. Or... just right.

    February 28, 2011 at 6:16 am |
  3. Justina

    CNN, why do I always get the moderation caution? Am I tagged or something? Why?

    February 28, 2011 at 6:18 am |
  4. Justina

    CNN, if you liberals don't want me to post comments, just tell me so.

    February 28, 2011 at 6:20 am |
  5. Justina

    CNN, you are so up against religious conservatives. Nice freedom of speech in America. You don't support freedom for all but only for your kinds.

    February 28, 2011 at 6:24 am |
  6. Justina

    CNN, why don't you just erase off the comments you don't like or bar the commentors? That's what you do when you disagree.

    February 28, 2011 at 6:40 am |
  7. Guest

    Justina, take a chill pill.

    February 28, 2011 at 8:00 am |
  8. Justina

    Guest, I'm sorry I've been annoying here. I was also testing the comment section how it operates because I do get those causion thing almost everytime, though now they are gone. I don't need pills. Don't be over-medicated, pal.

    February 28, 2011 at 8:51 am |
  9. Jack

    Go back to Fox News Justina or if thats not your style of propaganda then CCTV.

    February 28, 2011 at 11:54 am |
  10. Rohit

    A usual news article blowing things out of proportion and being biased at the same time. Firstly, its not just Asia that suffers due to rising crude and food prices. Its global. And just because jobless claims have been dropping doesn't mean US is out of the woods. It still has trillions of dollars of debt which is the same case for Euro zone nations. At least Asian economies are truly growing which is why they get the inlfation bite. So stop hating blindly. You are in for a big surprise. Just let a few years pass by and you'll see the power of Asia.

    February 28, 2011 at 4:16 pm |
  11. levend

    Oil prices will continue to rise as production starts to decline, no matter what happens they just cant produce enough. What they do produce is running out. Guess what happens high school economic supply and demand.

    February 28, 2011 at 11:32 pm |
  12. h2oloo

    Cost of Labor is only one of the China's competitive edge. Availability of human resources that are adaptable to flexible manufacturing and dynamic market demands, local manufacturing support or eco system allows rapid prototyping to market capability and ..........

    March 1, 2011 at 4:34 am |

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