SINGAPORE—Fears are growing that Asia's recent troubles with inflation could go deeper than initially expected as countries bump up against labor shortages and other problems commonly seen in times of too-fast growth.
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Inflation concerns in Asia have grown in the past few months, but have focused on rising food costs exacerbated by bad weather and, more recently, higher oil prices amid political tensions in the Middle East.
But unease is now growing around so-called core inflation, which typically excludes volatile elements such as energy and food, and which has also been rising in much of the region.
Thailand on Wednesday raised its benchmark interest rate for the third time in recent months and cited pressure both on overall and core inflation.
And the Bank of Korea said in a report Wednesday that inflation is coming not just from supply shortages but also from the demand side on the back of the country's economic recovery.
Separately, central bank Governor Kim Choong-soo warned the country's inflation may break through the bank's forecast for the first half of the year.
Economists say many Asian countries are now fully recovered from the recent global financial crisis, and as a result are getting back to where they were in 2008, when a long economic expansion was starting to reveal acute shortages of labor, land, infrastructure and factory capacity.
Unemployment has returned to precrisis levels in some Asian countries, with unemployment now below 4% in Malaysia, Thailand, Singapore, Hong Kong and South Korea. Indices measuring utilization of industrial capacity are at or well above historical averages in some countries, and land for farming or new residential development has become increasingly hard to come by.
"There's not much slack left" in Asia, says Robert Subbaraman, an economist at Nomura in Hong Kong. As a result, he says he and his colleagues believe inflation "is going to be long-lasting in Asia."
Many factors could change that outlook, including good harvests over the coming year, and any easing of tensions in the Middle East, which could bring food and oil prices back down. Governments could further tame inflation through more aggressive interest-rate increases, while some countries, such as China, could deal with labor shortages by boosting the productivity of its workers, producing more with fewer employees.
Even so, inflation debates across Asia are increasingly focusing on domestic capacity constraints, instead of just food and oil.
Consider Singapore, which has one of Asia's higher inflation rates at 5.5% on year in January and which is at the head of a problem trend also cropping up to some degree in its less wealthy neighbors. Residents are increasingly unhappy over side effects of too-rapid growth, including worsening traffic, an overcrowded subway, and rapid increases in property prices.
One of the biggest problems, though, is a shortage of low-cost labor. The labor market is so tight that some employees are now able to command 30% pay raises if they switch jobs, says Chris Lee, a manager at SG Recruiters Group, a recruiting firm in Singapore. Restaurant managers are getting up to 2,500 Singapore dollars (US$1,970) a month, compared with S$1,800 a month a year or so ago, he says, and many restaurants are raising prices as a result.
"It's a job-seeker's market," he says. "The job market will definitely be getting tighter over time and there will be shortages of workers in most industries in the years ahead," he predicts.
Contributing to the problem is a growing unease over using low-cost foreign workers to help keep wages down. Singapore has long relied heavily on such workers from Bangladesh, China and elsewhere to man its construction sites, factories and hotel lobbies, enabling Singapore to run much of its economy without always paying developed-world wages.
Recruiters say it is getting harder to lure workers from places like China, where rapid economic growth of recent years has pushed wages higher and created more opportunities at home. Native Singaporeans, meanwhile, are growing angrier over the presence of so many foreign workers and pressuring the government to keep them out.
The government is raising the fees it charges employers that bring in foreign workers, including an increase proposed in February that is expected to raise the cost of imported factory workers by an average of S$60 a month. There was a similar increase last year.
Recent "growth turned out to be much stronger than expected, and now local wage costs are going up," Finance Minister Tharman Shanmugaratnam said in parliamentary debates about the levies and other issues March 2.
The wage increases are expected to ripple across Singapore's economy. "I don't think any company will not pass on the cost to consumers," says Jay Chiu, managing director of Grandwork Interior, a construction and design firm that employs about 170 foreign workers. "There's no way a lot of operators can absorb the costs."
Some economists note that Singapore is hardly representative of the rest of Asia, given its relatively advanced economy, low birth rate, and small size, all of which leave it with a much shallower domestic labor pool than India, China, or even Thailand, with its 65 million people.But other countries are encountering labor-market constraints, too. China has reported its own highly publicized wage pressures over the past year, while Philippines recruiters say they are facing a dearth of IT workers, with some employers raising wages as much as 20% over the past year.
During the ongoing annual session of China's National People's Congress, official after official have declared the fight against inflation their top priority, but have also pledged to boost incomes, which will put its own pressure on prices.
Thailand, meanwhile, had a shortage of as many as 100,000 manufacturing workers last year, the World Bank has said. The Thai government raised the minimum wage an average of 6% this year, and has promised to raise it a further 25% if it retains power in elections expected this year.
Ford Motor Co.'s Southeast Asia president, Peter Fleet, said in an interview Tuesday that while the auto maker hasn't seen major worker shortages at its factories in Thailand yet, it has expressed concerns over possible future problems to the government given Thailand's low unemployment rate, and has recommended officials develop more low-cost housing and schools to make it easier to attract labor.
The Malaysian government recently said it would bring in 45,000 workers mainly from India to temporarily ease Malaysian labor shortages, which restaurant and other business owners said were threatening the viability of their operations.
"There's just not enough labor to go around," especially in high-tech industries, says Robert Haak, managing director at Insight interAsia,a Singapore-based sales and marketing company that helps U.S. firms set up operations across Asia.
All of that is intensifying the debate over whether Asia's emerging economies are simply growing too fast.
"Whereas much of the developed world—particularly the U.S.—has plenty of 'room to grow' due to large remaining output gaps, a more shallow downturn combined with a stronger recovery has left many emerging markets with little or no remaining spare capacity," economists from Goldman Sachs wrote in a recent commentary. High food prices and tight capacity have "begun to spill over into more generalized inflation, as rising food prices push up input costs for firms and wage demands from workers."
Feeling the Heat
Consumer prices are moving unevenly across the world. See inflation rates across 50 countries. Global Rates
Rate changes since 2004 in dozens of countries.
But unease is now growing around so-called core inflation, which typically excludes volatile elements such as energy and food, and which has also been rising in much of the region.
Thailand on Wednesday raised its benchmark interest rate for the third time in recent months and cited pressure both on overall and core inflation.
And the Bank of Korea said in a report Wednesday that inflation is coming not just from supply shortages but also from the demand side on the back of the country's economic recovery.
Separately, central bank Governor Kim Choong-soo warned the country's inflation may break through the bank's forecast for the first half of the year.
Economists say many Asian countries are now fully recovered from the recent global financial crisis, and as a result are getting back to where they were in 2008, when a long economic expansion was starting to reveal acute shortages of labor, land, infrastructure and factory capacity.
Unemployment has returned to precrisis levels in some Asian countries, with unemployment now below 4% in Malaysia, Thailand, Singapore, Hong Kong and South Korea. Indices measuring utilization of industrial capacity are at or well above historical averages in some countries, and land for farming or new residential development has become increasingly hard to come by.
"There's not much slack left" in Asia, says Robert Subbaraman, an economist at Nomura in Hong Kong. As a result, he says he and his colleagues believe inflation "is going to be long-lasting in Asia."
Many factors could change that outlook, including good harvests over the coming year, and any easing of tensions in the Middle East, which could bring food and oil prices back down. Governments could further tame inflation through more aggressive interest-rate increases, while some countries, such as China, could deal with labor shortages by boosting the productivity of its workers, producing more with fewer employees.
Even so, inflation debates across Asia are increasingly focusing on domestic capacity constraints, instead of just food and oil.
Reuters
A man transports goods on a traditional tuk-tuk taxi in Bangkok Wednesday. Thailand raised interest rates again to fight inflation, and has started to see labor shortages.
One of the biggest problems, though, is a shortage of low-cost labor. The labor market is so tight that some employees are now able to command 30% pay raises if they switch jobs, says Chris Lee, a manager at SG Recruiters Group, a recruiting firm in Singapore. Restaurant managers are getting up to 2,500 Singapore dollars (US$1,970) a month, compared with S$1,800 a month a year or so ago, he says, and many restaurants are raising prices as a result.
"It's a job-seeker's market," he says. "The job market will definitely be getting tighter over time and there will be shortages of workers in most industries in the years ahead," he predicts.
Contributing to the problem is a growing unease over using low-cost foreign workers to help keep wages down. Singapore has long relied heavily on such workers from Bangladesh, China and elsewhere to man its construction sites, factories and hotel lobbies, enabling Singapore to run much of its economy without always paying developed-world wages.
Recruiters say it is getting harder to lure workers from places like China, where rapid economic growth of recent years has pushed wages higher and created more opportunities at home. Native Singaporeans, meanwhile, are growing angrier over the presence of so many foreign workers and pressuring the government to keep them out.
The government is raising the fees it charges employers that bring in foreign workers, including an increase proposed in February that is expected to raise the cost of imported factory workers by an average of S$60 a month. There was a similar increase last year.
Recent "growth turned out to be much stronger than expected, and now local wage costs are going up," Finance Minister Tharman Shanmugaratnam said in parliamentary debates about the levies and other issues March 2.
The wage increases are expected to ripple across Singapore's economy. "I don't think any company will not pass on the cost to consumers," says Jay Chiu, managing director of Grandwork Interior, a construction and design firm that employs about 170 foreign workers. "There's no way a lot of operators can absorb the costs."
During the ongoing annual session of China's National People's Congress, official after official have declared the fight against inflation their top priority, but have also pledged to boost incomes, which will put its own pressure on prices.
Thailand, meanwhile, had a shortage of as many as 100,000 manufacturing workers last year, the World Bank has said. The Thai government raised the minimum wage an average of 6% this year, and has promised to raise it a further 25% if it retains power in elections expected this year.
Ford Motor Co.'s Southeast Asia president, Peter Fleet, said in an interview Tuesday that while the auto maker hasn't seen major worker shortages at its factories in Thailand yet, it has expressed concerns over possible future problems to the government given Thailand's low unemployment rate, and has recommended officials develop more low-cost housing and schools to make it easier to attract labor.
The Malaysian government recently said it would bring in 45,000 workers mainly from India to temporarily ease Malaysian labor shortages, which restaurant and other business owners said were threatening the viability of their operations.
"There's just not enough labor to go around," especially in high-tech industries, says Robert Haak, managing director at Insight interAsia,a Singapore-based sales and marketing company that helps U.S. firms set up operations across Asia.
All of that is intensifying the debate over whether Asia's emerging economies are simply growing too fast.
"Whereas much of the developed world—particularly the U.S.—has plenty of 'room to grow' due to large remaining output gaps, a more shallow downturn combined with a stronger recovery has left many emerging markets with little or no remaining spare capacity," economists from Goldman Sachs wrote in a recent commentary. High food prices and tight capacity have "begun to spill over into more generalized inflation, as rising food prices push up input costs for firms and wage demands from workers."
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