Monday, May 3, 2010

Asian Inflation Contagion?

While reported inflation figures in the United States and Europe remain tame, they are exploding in Asia.  As we've discussed in prior blogs, China appears to be in the midst of a property bubble amid booming economic growth.

South Korea and Indonesia reported higher-than-expected inflation this morning, one day after China raised banking reserve requirements in an attempt to cool its overheating economy.  In a sign that inflation is firmly taking root, core prices, which exclude volatile food and energy, are ticking up.

Australia, like China, is experiencing a rapid increase in property prices.

Australia reported today that housing prices rose 4.8% in the 1st quarter from the end of 2009 and are up 20% in its 8 large cities from the year earlier.  The news, which heightened concerns that a bubble has formed there, may forsage a rise in interest rates when the Reserve Bank of Australia meets tomorrow.

Australian propety prices are vaulting upward with a 27.7% annual increase in Melbourne, 21% in Sydney and 15% in Perth.

Asia's economies are running at breakneck speed.  Other indicators released today included positive readings in purchasing managers' indexes in Taiwan, Australia, South Korea and India.   Retail sales in Hong Kong were strong.

South Korea's consumer price index rose 2.6% in April from a year earlier and 0.5% from the previous month.  Core prices rose 1.5% in April from the previous year and 0.2% from March.

Indonesia said consumer prices there rose 3.9% from the year earlier period, while core inflation rose 3.7%. Thailand reported consumer prices rose 3% in April.  Core inflation rose a modest 0.5% from the year before.

Countries experiencing double-digit annualized inflation include India, Turkey and Iceland.

One of the highest inflation readings is being experienced in Vietnam, with inflation exploding at an annual rate of 25% in April.  The only exception in the region is Japan, which continues to be mired in deflation.

So, while the West has not YET seen the full impact of the un-precedented stimulus spending in prices, it will undoubtedly follow in Asia's footsteps, especially in light of the extended period of negative "real" interest rates (interest rates minus inflation). 

With the backdrop of rising world inflation this can only be a major positive factor for GOLD.  We continue to maintain our position that the hyperbolic growth phase for GOLD has begun and leaves plenty of time for investors to get on board.

Marko's Take

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