Central bankers across Asia are facing some hard choices as they confront the “silent tsunami” of surging food prices and what could be a decade of stubborn inflation.

Economists are giving warning that interest-rate decisions made over the coming weeks and months may be critical factors in averting mass unrest.

The price of rice and other grains have touched historic highs and threaten to continue their march higher as the market responds to a barrage of political and environmental bad news.

With markets more sensitive than ever, commodities traders in Hong Kong have predicted several days of extreme volatility as prices shift to reflect the devastation wrought by Cyclone Nagris in Burma and last week’s controversial suggestion from Thailand that the world’s rice producers form an Opec-style cartel.

The extreme conditions of the Asian rice market were demonstrated again yesterday after the Philippines, the world’s largest importer, was forced to cancel an offer to buy 675,000 tonnes from Vietnam. The tender was cancelled after only one company came up with an offer and at a price that was thought far too high.

The scrutiny of monetary policy makers will begin this week with interest-rate decisions due from the Bank of Korea and Bank Indonesia. The former must grapple with the effects of having a persistently weak currency in the face of rising import costs; the latter, according to economists, represents the impending inflation dilemma for Asian central bankers – whether food inflation on its own yet warrants a move in interest rates.

The pace of inflation has already pushed the balance of Asian monetary policy towards a phase of tightening.

The key debate, Glen Maguire, chief Asia economist at Société Générale, said, is how soon central banks make the transition from viewing food price inflation as a short-term, cost-push effect to treating it as a long-term structural driver of inflation.

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