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Page added on May 30, 2008

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Asia Has Blown Its Chance to Destroy Oil Demand: Andy Mukherjee

(Bloomberg) — Asian governments are squirming.

With crude oil near $130 a barrel, their strategy to shield consumers from high energy prices is becoming a drag on national budgets. The unsustainable subsidies and price controls must go, say economists. The problem is with the timing of any such move.

The cost of living is soaring almost everywhere, pushed higher by food. Inflation expectations are hardening. In such an environment, policy makers will have to think twice before raising energy costs. A quickening of inflation is to be avoided, even if the acceleration is temporary.

A good time to act was last year, especially in the first half of 2007 when the price of crude oil averaged about $60 a barrel. Inflation wasn’t as big a challenge in 2007 as it is now and authorities had ample leeway to start letting higher costs of petroleum products pass through into local prices.

They missed the chance.


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