A precipitous rise in food prices is the "new villain" that Asian countries, particularly the poorer ones, must combat, a report by Standard Chartered Bank (SCB) says.

However, economists from the bank warned that traditionally effective means of curbing inflation might not work.

"This is a different kind of inflation," said Simon Wong, a regional economist with SCB. He pointed out that the steep climb in food prices has outpaced the inflation of non-food items by an unprecedented pace.

According to statistics provided by the bank, food prices have swelled approximately 14 percent since 2002, whereas prices for non-food items climbed just 7 percent.

"The price discrepancy between food and non-food items has been at its peak in the last two decades," Wong said.

Those hardest hit by the hefty food prices are undoubtedly the poor, who can least afford it. Wong said that impoverished countries, where the populations spend as much as 50 percent of their income on food, will feel the greatest pinch. Since food is a necessity, Wong said the demand will unlikely waver.

"But more money going into food means that there will be less money left over to spend in other areas," Wong said. "This will inevitably create a broader economic impact, even for non-food-related industries."

But Standard Chartered Regional Head of Economic Research Nicholas Kwan said monetary tightening - the traditional tool used to fight inflation - is unlikely to work this time around.

"Monetary tightening is only effective if there is a broad inflation that cuts across different sectors," Kwan said. "But since only food is involved, more specific measures are called for."

He believes that stimulation policies for the agricultural industry, for instance, might be more useful under these circumstances.

For Hong Kong, however, food inflation may slow down by the end of the year.

Standard Chartered Regional Economist Kelvin Lau said that since China was one of the first countries to recognize the extent of the food-shortage problem, he expects the measures taken last year to bear fruit this year.

"Policies have already been made to address the pork shortage, so there is hope that food inflation might flatten out a little in the latter quarters of this year," Lau said.

US economy to tame HK GDP

Standard Chartered Bank predicts that Hong Kong's GDP growth for the first quarter will hover around the 5 percent level, compared with the 6.7 percent growth rate in the last quarter of 2007. The dip, according to Lau, is mainly attributable to the sluggish US economy.

"The impact on the export sector is very clear," Lau said. "And coupled with the stock market becoming increasingly volatile, spending in the territory has weakened."

He said the export sector must now redirect its focus on markets outside of the US that still have a good growth potential in order to pare off the negative effects.

The bank forecasts that Hong Kong's 2008 GDP will slow to about 4.1 percent.

(HK Edition 05/16/2008 page2)