Asian factory output strong, inflation mounting

Asian factory output strong, inflation mounting

Sydney: Factories in Asia-Pacific cranked up production last month, with Australia surging at its fastest pace in eight years, and mounting inflation pressures pointed to further policy tightening as the economic recovery gathers steam.

Output growth in India eased a tad in April but still held near a 20-month high hit in February while factory activity in South Korea picked up after a brief dip, surveys by HSBC/Markit showed on Monday.

The findings were similar to that in China’s official survey of purchasing managers released on Saturday, which showed its fast-growing economy retained its momentum in April despite a government’s campaign to cool the red-hot property sector.

Policymakers in Asia have been leading the rest of the world in withdrawing stimulus put in place during the global crisis and a further buildup in price pressures last month backed views that central banks will continue to tighten policy.

“In our view, India is in for a protracted period of rate hikes, the extent of which will surprise most forecasters," said Robert Prior-Wandesforde, senior Asian economist at HSBC.

India’s PMI showed seasonally adjusted input prices remained near multi-year peaks, suggesting official wholesale price inflation could pick up from a 17-month-high of 9.9% in the latest data for March.

The Reserve Bank of India (RBI) raised its key interest rates and bank reserve requirements by 25 basis point each in April and analysts in a Reuters poll expect it to tighten policy further, raising the repo rate by 100 basis points to 6.0% by the end of December.

On Sunday, China raised banks’ reserve requirements by 50 basis points for its third increase of that magnitude this year as it moves to calm the surging economy.

The PMI survey showed input prices in China rose at the fastest pace since the second half of 2008, keeping alive the fears of an overheating in an economy that grew in the first quarter at an annual pace of 11.9%, the fastest since 2007.

The purchasing managers’ index from the euro zone and the United States, both due later in the day, are also expected to show a pick up in activity.

Quickening Inflation

The central banks of Australia, India and Brazil are the only Group of 20 countries to have raised interest rates since the global downturn.

Financial markets are pricing in a 70% chance that the Reserve Bank of Australia will lift its cash rate by 25 basis points to 4.5% on Tuesday, which would be the sixth hike since October.

The Australian Industry Group/PriceWaterhouseCoopers performance of manufacturing index jumped 9.3 points in April to 59.8, well above the 50 threshold between contraction and expansion and the highest reading since May 2002.

“The encouraging results across much of the manufacturing sector in April are signs the recovery, which has been patchy to date, is now beginning to gain some traction," said Heather Ridout, the chief executive of Australia Industry Group.

With economic recovery comes inflation.

The TD Securities-Melbourne Institute measure of Australia’s consumer price inflation rose 0.4% in April from the previous month, lifting the annual pace to 2.9 percent, near the top of the central bank’s long-term target of 2-3%.

Other data showed house price rose in the first quarter by a fifth from a year earlier, a record pace.

Inflation also picked up in South Korea and Indonesia in April, with consumer prices rising more than expected in both countries.