ADB warns over increasing inflation in Asia

The Asian Development Bank (ABD) has warned that inflation will reach its highest level in a decade in most of Asia this year, threatening to reverse recent gains in productivity as well as creating fiscal strains for governments that provide massive subsidies for fuel and food.

The ADB haslowered its economic growth forecasts for the region as a global slowdown weighs on exports and expansions in China and India cool.

Bloomberg reports that Asia excluding Japan is predicted to expand 7.6 percent this year, less than a September estimate of 8.2 percent, the Manila-based institution said in a report today. The economies grew 8.7 percent in 2007, the fastest clip in almost two decades.

Central banks will pursue policies to quell inflation rather than spur economic growth, the ADB said, the second organization this week after the World Bank to warn of the threat of rising energy and food prices to the region. China will implement a ``tight'' monetary policy this year, the government's State Council said yesterday.

``The major risk lies not so much in softer growth but in rising commodity prices and accelerating inflation,'' the ADB said. ``Appropriate macroeconomic responses to accelerating inflation are likely to include tighter monetary policy and some exchange-rate appreciation.''

Crude oil rose to a record $111.80 a barrel last month, while prices of food staples including rice, wheat and soybeans and palm oil have surged amid increased demand and higher fuel and freight costs.