July 23 20084:39am
Daniel Altman in Growing pains
Not easily pleased. (Bullit Marquez/AP)Okay, there’s never a good time for high inflation. But the big jumps in commodity prices, which are now turning into generalized inflation, have come at a particularly awkward moment for much of Asia, as Keith Bradsher writes. Now the region faces a difficult problem: how to choose an appropriate economic policy without too much political fallout.
Countries big and small, from China to Cambodia, were already growing extremely quickly when the latest wave of inflation struck. In some places, the fast growth was a deterrent to political instability; people don’t tend to complain when they’re getting rich. Yet over a year ago, economists (myself included) began to warn about overheating - when an economy grows so quickly that demand outstrips supply, prices spiral skywards, central banks are forced to clamp down, and the economy is cast into recession.
The added pressure of global inflation means central banks may have to act sooner rather than later. But in the meantime, governments must face a clamor of discontent from their citizens, who want help confronting high prices. Some governments have actually cut expensive subsidies on gasoline, but their remaining subsidies on energy and food just add fuel to the fire of inflation. If they ban exports to enhance domestic supply, their own producers may cut their output. There are no good options, only second-bests. And it’s not just happening in Asia - countries in South America and Africa are facing the same dilemma. How can people who want more make do with less?