Thailand’s inflation rate will not soar as dramatically as those in China and Indonesia because the rate is calculated based more than 30 per cent on rice and food prices, according to a leading Bangkok commercial bank economist.

Sethaput Suthiwart-Narueput, head of the Siam Commercial Bank (SCB) Economic Intelligence Centre, said the Monetary Policy Committee’s decision to raise the benchmark interest rate by 25 basis points from 2.25 per cent to 2.50 per cent on Wednesday lived up to expectations.

Asia has an inflation problem. The sooner it comes to grips with its problem, the better. Unfortunately, the appropriate sense of urgency is missing.

Willingness to tackle inflation is impeded by Asia’s heavy reliance on exports and external demand. Fearful of a relapse of end-market demand in a still-shaky post-crisis world, Asian policymakers have been reluctant to take an aggressive stand for price stability. That needs to change – before it’s too late.

Excluding Japan, which remains mired in seemingly chronic deflation, Asian inflation rose to 5.3% in the 12 months ending in November 2010, up markedly from the 3.5% rate a year earlier. Trends in the region’s two giants are especially worrisome, with inflation having pierced the 5% threshold in China and running in excess of 8% in India. Price growth is worrisome in Indonesia (7%), Singapore (3.8%), Korea (3.5%), and Thailand (3%) as well.

Yes, sharply rising food prices are an important factor in boosting headline inflation in Asia. But this is hardly a trivial development for low-income families in the developing world, where the share of foodstuffs in household budgets – 46% in India and 33% in China – is 2-3 times the ratio in developed countries.

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Thai inflation won’t soar as in China, Indonesia, says SCB chief economist

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