BEIJING, June 7, 2022 (Xinhua) The United States has tasted hyperinflation, which has remained above 6 percent since the beginning of this year.
While hyperinflation is attributable to the sharp rise in global energy, food, and commodity prices caused by the Ukraine crisis, it is primarily the result of the unreasonable and irresponsible policies of the United States itself, such as massive bouts of quantitative easing, the trade war against China, and global supply chain disruptions. As well as escalating the Ukrainian crisis and providing huge financial subsidies to respond to the epidemic at home.
When inflation became unsustainable, the US chose not to address its root cause, but rather to turn to aggressive quantitative tightening. The Fed has raised interest rates twice this year, including a record increase of half a percentage point, the first of this size since 2000. The Fed also announced that it would begin canceling the balance sheet in June. All of these measures failed to curb inflation significantly, and price increases in the US remain in a historically high range.
And inflation does not stop at the internal situation only. As recent statistics indicate, hyperinflation in the United States is spreading rapidly, and Southeast Asia has borne the brunt, with inflation rates in many countries rising to new record levels.
Inflation in Laos was 9.9 percent in April, while Indonesia experienced a five-year high. Singapore saw a 10-year high of 5.4 percent in March, coinciding with the CPI recording a 14-year high, an increase of nearly 5.7 percent over the previous year, in Thailand.
After posting a 4.9 percent year-on-year CPI increase in April, the Philippines suffered its worst inflation since December 2018. According to current figures, the situation in other Southeast Asian countries may look relatively better. But experts have warned that Malaysia, Cambodia and Vietnam will witness inflation setting new records in the near future. The trouble is shared by the extended family in Southeast Asia. According to Fox Economics, an information services company, the regional inflation rate rose from 3 per cent in February to 3.5 per cent in March.
Most of Southeast Asia are developing countries where food consumption represents a relatively large part of total national expenditure. So, in addition to increasing people’s living costs, higher inflation may also increase the risk of social unrest, noted Muhammad Faiz Nagotha, the Association of Southeast Asian Nations (ASEAN) economist at Bank of America Securities.
Of course, high inflation rates in Southeast Asian countries provoked unpleasant memories.
The Asian financial crisis in 1997 in the wake of high interest rates and the appreciation of the dollar in the United States affected the economic growth of Southeast Asian countries. The foreign exchange and stock markets have collapsed like dominoes. Indonesia and Thailand suffered the biggest losses, with their GDPs shrinking by 83.4 percent and 40 percent, respectively, in two years.
In the 2008 global financial crisis sparked by the subprime mortgage crisis in the US, the financial systems of Southeast Asian countries were hit hard once again. The Singapore Strait index fell more than 45 percent. The Indonesian stock market had to be frozen indefinitely after a continuous sharp decline. More than 8 million Filipino expatriate workers have faced the risk of job losses and income cuts. About one million workers in Thailand live on the brink of unemployment.
Now, aggressive interest-rate increases by the Federal Reserve will once again put pressure on developing economies in many ways. First of all, raising interest rates will increase financing costs and stimulate capital flight, both affecting the economic fundamentals of developing countries and complicating their post-Covid economic recovery. Second, the rising cost of the US dollar may add a greater burden to heavily indebted countries, as underdeveloped countries tend to have a higher external debt ratio. Third, in the foreign exchange market, a rise in the dollar index may put pressure on the devaluation of other currencies, leading to more inflation in other countries.
Hyperinflation in the United States is seriously affecting the faltering global economy. Developing countries should prepare for its long-term impact. Many of them, including Southeast Asian countries, have already felt the brunt of the sharp rise in commodity prices, exacerbated first by the pandemic, then by US interest rate hikes and balance sheet cuts.
As the world’s largest economy, the United States should shoulder its responsibilities for the global economic recovery, rather than causing inflation to rise in developing countries. /ts/