Asia inflation offers some hope worst may be over

By Koh Gui Qing

SINGAPORE (Reuters) - Inflation scaled a 17-year high in Australia and held at a 26-year record in Singapore, but the data, combined with a drop in oil prices, offered a glimmer of hope that the worst of the inflation storm may soon pass.

Economists, however, say it is too early for policymakers to drop their guard given the risk that past hefty price increases can still translate into increased wage demands and a lasting upward shift in inflation expectations.

Singapore data on Wednesday showed June inflation at 7.5 percent, below a market forecast of 8.0 percent, while Australia's 4.4 percent second-quarter core annual inflation rate matched market and central bank expectations.

With both economies cooling off rapidly, analysts were convinced consumer price inflation -- fuelled by soaring crude and food prices -- had peaked and no further policy tightening was in store.

"There is little doubt that the economy is flirting with recession, and, because of that, there is little doubt that inflation has peaked," said Stephen Koukoulas, global head of economics at TD Securities in Australia.

A $20 retreat in oil prices from a record above $147 a barrel earlier this month also helped brighten the inflation outlook.

Malaysia is expected to report later in the day its inflation spiked to 6.8 percent in June from 3.8 percent in May.

But with most of the spike attributed to a rise in official fuel prices, analysts are not sure the jump will be enough to prompt the central bank to raise rates for the first time in three years when it meets on Friday.