WRAPUP 2-Australia inflation surprise highlights rising price pressures in Asia

Wed Oct 23, 2013 11:27am IST

* Australia Q3 inflation higher than expected

* Extends trend seen in New Zealand, China and Japan

* Singapore central bank warns of higher inflation

* Malaysia next to report CPI, Japan later in the week (Updates with Singapore Sept CPI, central bank's comments)

By Ian Chua and Kevin Lim

SYDNEY/SINGAPORE, Oct 23 (Reuters) - Inflation in Australia quickened in the September quarter, the latest in the Asia Pacific region to show a pick-up in price pressures that could limit the scope for policymakers to inject more stimulus if needed.

Australia's quarterly headline inflation sped up to 1.2 percent in the third quarter from 0.4 percent in the second, data from the Australian Bureau of Statistics showed on Wednesday, reflecting in part a spike in fuel prices.

The outsized quarterly move jolted markets, sending the Australian dollar to a 4-1/2-month high and prompting markets to trim chances of another interest rate cut this year.

Australia's data came a week after neighbouring New Zealand, India and China all reported higher-than-expected inflation.

Singapore's consumer prices in September rose 1.6 percent from a year earlier, below forecasts, but the central bank warned that core inflation was expected to rise over the next few quarters.

The city-state's core inflation measure excludes housing rents as well as the price of motor vehicles as these are determined primarily by government policies.

"The pass-through of domestic costs to prices of consumer services could intensify as a result of the rising cost pressures that firms are facing from business rentals, COE premiums for commercial vehicles, and labour costs," the Monetary Authority of Singapore (MAS) said in a statement. Singapore uses certificates of entitlement (COEs) to control the number of vehicles on its roads.

Selena Ling, head of treasury research at Oversea-Chinese Banking Corp, Singapore's number two lender, said there was an "upward creep" in inflation across the region. Domestic demand remains strong in most Asian countries, while possible further cuts in fuel subsidies by the Malaysian and Indonesian governments will also push price levels higher.

"But we are starting from a generally low point, which is why a lot of central banks are willing to stand on the sidelines for now."

One potential threat for Asia's inflation outlook, particularly the region's emerging economies, could come early next year when expectations for the Federal Reserve to scale back stimulus return to the fore.

That could see a repeat of this year's sell-off in emerging assets that drove currencies such as the Indonesian rupiah to multi-year or even record lows. A development that could sit uncomfortably with inflation hawks.

While the quarterly jump in Australia's inflation caught the market's attention, the annual inflation rate for both underlying and headline measures were still comfortably within the Reserve Bank of Australia's (RBA) 2-3 percent target band.

"The RBA pausing for many months to come makes the most sense at this juncture," said Annette Beacher, head of Asia-Pacific Research at TDSecurities in Singapore.

Later in the week, Japan will release its inflation numbers but it is probably the only country in Asia happy to see some price pressure, having unleashed a potent mix of fiscal and monetary stimulus known as "Abenomics" to end 15-years of deflation.

Japan's core consumer prices, which exclude prices of fresh food but include oil products, probably rose 0.7 percent in September from a year earlier.

That would mark the fourth straight month of positive readings, keeping the annual growth rate near a five-year high of 0.8 percent seen in August. (Editing by Jacqueline Wong)

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