“Sharp increases in global commodity prices are beginning to push consumer prices higher in Asia, boosting the odds that inflation will be exported to the U.S. and elsewhere in the months ahead,” writes Patrick Barta in today’s Wall Street Journal.

“Consumer prices had been holding fairly steady, or even declining, in much of Asia in recent years, as the region’s economies worked off excess capacity amid the global downturn. But as Asia heats up again, price pressures are building, in large part because of China’s ravenous appetite for raw materials. Oil prices have shot up and are hovering around $35 a barrel, while the prices of other raw materials, including scrap steel and copper, are double or more what they were just 18 months ago.”

“As a result, consumer price inflation, while still extremely low in Asia by historical standards, has accelerated in recent months. The most significant turnaround has occurred in China. That country’s inflation rate, though easing slightly in February, has jumped in recent months, including a 3.2% surge in January, compared with the year before. That comes after prices were nearly flat or declining through much of 2002 and 2003.”

“Price increases are also cropping up in some of the region’s other major economies. In Japan and Hong Kong, for example, it appears that a long stretch of price deflation may be coming to an end, as consumers are now paying more for some goods. In South Korea, the higher prices have been particularly pronounced among exporters, as domestic consumer demand remains slack. The pattern of rising prices is even more evident in Thailand and the Philippines.”

” ‘We’re kind of at a turning point’ in consumer prices in Asia, says Rob Subbaraman, a regional economist at Lehman Brothers in Tokyo. ‘Broad inflationary pressures are beginning to build.’ “

“Those pressures matter to the U.S. and other countries because so many of the manufactured goods that Americans buy these days come from Asia. In some cases, products are made entirely in Asia and then sold in the rest of the world, so that any price increases ripple out to consumers in other countries immediately. In other cases, U.S. companies buy small components in Asia for use in products manufactured elsewhere. As the costs of those components rise, the U.S. companies face pressure to charge more for the finished goods. For U.S. consumers, all of this could ultimately mean higher prices for everything from DVD players and television sets to furniture and brake pads.”

“A number of U.S. economists point to this trend as the latest evidence that the Federal Reserve needs to raise interest rates to keep inflation at bay. But the Fed until quite recently has been more worried about deflation than inflation. Despite a recent increase in consumer prices in the U.S., they were only 1.7% higher in February than in February 2003; excluding energy and food prices, they were up just 1.2% — and Fed officials do not want that figure to go much lower. For that reason, there doesn’t appear to be any urgency to raise rates.”

“While many U.S. and Asian companies have been reluctant to raise prices for fear of alienating customers, the increase in the cost of raw materials has been so steep that some feel they can no longer postpone that move. Also, some companies are for the first time in several years seeing enough demand growth that they aren’t as worried about customer flight.”

“Sony Corp., for instance, recently raised the prices of lithium batteries by an average of 10%, after the cost of cobalt — a metal used to make electrodes in the batteries — soared to about $25 a pound from $7 a pound in 2002. Lithium batteries are used to power electronic products from notebook computers to mobile phones. Sony says that so far, it has been able to keep prices for many of its other products from rising. Other Japanese companies boosting prices include JFE Holdings Inc., a steelmaker that has been hit with higher costs for ore and coal.”

“Companies in other Asian countries are also starting to pass these higher expenses along to customers. Kumho Tire Co., a major tire producer in South Korea, has increased the prices of its export products between 3% and 5% since January amid a 70% rise in rubber prices in the last 18 months. Similarly, Samsung Electronics Co. decided early last month to mark up several of its products, including refrigerators and washing machines, because of the higher prices for steel and resin, a compound used to make molds and plastic parts.”