ASIA: VIEW: JP Morgan Sees Uneven Impact Of Higher Rice Prices On Inflation

JP Morgan looks at the impact rising rice prices have had on Asian inflation, which given processed rice prices are up another 11.8% m/m in November is very timely. Increases since mid-year have added to inflation in India, Indonesia and the Philippines with further upside risks in India and Malaysia but Indonesia is helped by subsidies.

• While global processed rice prices are up 46.6% y/y, JP Morgan notes that “rice pricing varies materially across the region, reflecting regional policy idiosyncrasies and choices” and “buffers are in place to mitigate pass-through into consumer prices”.
• They observe that “domestic conditions matter more than global factors” for how rice prices impact local inflation.
• “We expect to see the most pass-through of recent price gains – and thus highest consumer impact – in India and Malaysia, with the latter reflecting subsidy rationalization. Given the supply-side nature of the impact, this would likely not necessitate a monetary policy response unless buoyant domestic demand leads to a propagation into other prices.”
• “In the case of Indonesia, the impact is expected to be increasingly offset by subsidies, resonating with Thailand, where retail rice prices have been well behaved despite large variations in wholesale prices. Whether these will prove to be distortionary over the longer term remains to be seen. But in the near term, subsidies should reduce pressure on inflation and thus the burden on monetary policy to respond.”