Asian economies are facing a hard time ahead fighting inflation, as strong liquidity has driven up prices for food, fuel and other necessities in the emerging economies, analysts say.

India faces a decade high inflation of about 16%.

China and other major emerging economies in the region also face Strong inflationary pressures.

Latest statistics showed Singapore consumer price index grew 4.6% Y-Y in December, higher than prior market estimates, and the highest inflation rate in 2 yrs.

While the drivers may be different to some extent, food and fuel remained the 2 Key drivers of consumer price inflation across the Asian economies.

The food index of the United Nations Food and Agriculture Organization shows that food prices have reached record levels, threatening to destabilize Global economic growth.

Within Asia there are some differences in the degrees to which the different economies are affected by rising food prices, as the weighting of food in the CPI basket might be different. The Philippines, Indonesia, India and Malaysia face particularly strong pressures.

Statistical authority of Singapore, which relies on the International market, said food prices rose almost across the board, naming categories such as prepared meals, vegetables, fresh seafood, rice and other cereals, chilled meat, as well as milk products.

Food prices were up 1.4% Y-Y in Singapore in Y 2010.

What is worrisome is that the inflationary pressure seems to have been spreading from food to non-food items in some of the Asian countries over the past few months, and rising food prices are a major threat to Global economic growth.

Countries in the region will likley be prompted to tighten aggressively if there are risks of inflation getting out of control, and this runs the risk harming their economic growth.

Official projection by the Monetary Authority of Singapore says the city state expected a CPI inflation rate between 2 and 3% in Y 2011.

The OCBC Bank, like most financial institutions in the market, forecasts higher inflation for Singapore, and economists say it is likely that they will adjust the forecast upward in the near term.

The strong Singapore Dollar is also believed to help limit imported inflationary pressures, as Singapore relies on imports for its food, and inflation will be the Key focus this year.

Policymakers, particularly in emerging economies, cannot ignore food price inflation as a transitory supply-side phenomenon, prudent use of monetary policy to prevent rising food prices from spilling over into broader inflationary pressures and other government policies aimed at addressing the supply side is very important in the fight.

Very important policy in dealing with food price inflation over the longer term will be investment in technology, improving farming techniques and upgrading distribution, storage and logistics chains.-Paul A. Ebeling, Jnr. www.livetradingnews.com

Trading the Food Crisis

The United Nations Food and Agricultural Organisation said record food prices in December were 25 per cent higher than a year earlier.

The warning follows a key world Food Price Index reaching a record 215 points in December, up 4 per cent from November and one point above its previous record during the food crisis in 2008.

Meat and Livestock Australia chief economist Tim McRae said demand was growing steadily for lamb, beef, pork and chicken as the world economy recovered after the Global Financial Crisis.

Here are the must own stocks as Food Prices keep rising

Olam International, Noble Group, Wilmar International

Singapore listed commodities companies are set to become the rising stars of the exchange in 2011 and will become global players of significant importance.
Olam International Ltd, Wilmar International Ltd and Noble Group Ltd are most likely to lead the charge as the benefit from home grown markets in ASEAN, China and India, where the world's largest populations are consuming more and more of the world's food supply.

Cash Flow is on the rise at Noble and Olam, both have successfully made the switch into production from trading, have been expanding ever since.
Olam is the world's largest supplier of cashews and sesame seeds, and is among the biggest sources of cocoa, rice, peanuts and cotton. It operates in 64 countries.

Noble is Asia's biggest supplier of raw materials. Only 22 percent of its revenue comes from agriculture, with the remainder coming from materials such as iron ore.

It has invested heavily in mines and processing.

Wilmar is Asia's leading agribusiness group and the world's largest integrated palm oil company.

Golden Agri-Resources Ltd is the world's second largest palm oil plantation with a total planted area of 435,000 hectares (including small holders) as at 30 September 2010, located in Indonesia. It has integrated operations focused on the production of palm-based edible oil and fat products.

Demand is expected to grow because of demand for biofuels, which is part of the reason the company bought the sugar and renewable energy businesses from Australia's CSR.