Forget subprime. In Asia, the big fear is inflation.

The US banking crisis is probably behind us, months of argument and guessing whether the US in a slowdown or recession also probably will come to pass soon but a new threat is developing: inflation. I don't feel quite comfortable about this since beginning of this year, the voice begin to get louder. When those boys and girls on CNBC and Bloomberg begin to scream, it will scare a lot of people. Hope this article will help us to get a feel of what is coming.

(Fortune) Hank Paulson likes a packed agenda. The US Treasury Secretary’s two-day visit to Beijing, which concluded Thursday, was a blur of meetings with Chinese officials, with talking points ranging from financial deregulation to tariffs on American-made medical equipment, currency policy and unrest in Tibet. Notably, though, Paulson doesn’t seem to have spent much time talking with China’s leaders about the one economic issue they say concerns them most: rising inflation.

In his final speech here today, which was devoted mostly to energy and the environment, Paulson touched obliquely on the subject of inflation. Noting China’s efforts to combat rising energy prices with government price caps, he warned that such measures had backfired when tried by US officials in the 1970s, resulting in heating oil shortages and rationing.

“China, by setting price controls on fuel, is facing similar consequences today,” Paulson said. “And because market forces can never be completely eliminated, price controls often lead to smuggling and corruption.”

But China’s inflation fears run deep – and extend beyond just energy. The big concern is soaring food prices, particularly for such staples as cooking oil, milk, grain, vegetables and above all pork. In February, Chinese consumer prices leapt 8.7% over the same period last year, to their highest level in 12 years. Pork prices, hit by an epidemic of the deadly “blue-eared” virus, surged in some areas by as much as 65% - prompting waves of pig-jackings.

Shortages of pork and other basic food items prompted China’s premier Wen Jiabao, with whom Paulson met Thursday, to tell China’s national parliament last month that whipping inflation is his top priority.

Such sentiments put China’s economic planners at odds with counterparts in Washington where the Federal Reserve is slashing interest rates and pumping credit into beleaguered banks. But perhaps it’s the US that’s out of step. As my colleague Peter Gumbel has observed, policymakers in Europe remain far more concerned about inflation than the threat of a liquidity squeeze. (See Peter’s excellent survey of the view from Europe here.)

The story is the same elsewhere in Asia. On Wednesday, the Manila-based Asia Development bank warned that, throughout the region, inflation has reached its highest level in a decade. Ifzal Ali, the ADB’s chief economist, said the widespread use of government price controls suggests real inflation is probably a lot worse than the official figures suggest.

The World Bank recently estimated that 33 countries around the world “face potential social unrest because of the acute hike in food and energy prices.” Jim Adams, World Bank vice president for the East Asia and Pacific, argues that in East Asia, where the burden of higher food and fuel prices falls so heavily on the poor, inflation poses a far greater risk to stability than fallout from the subprime debt crisis. “While the subprime crisis will have its impacts — possibly on some countries more than others — the more immediate concern is that in virtually every East Asian country, inflation is climbing to uncomfortable levels,” Adams says.

Shortages and high food prices have generated social tension around the world in recent months, triggering food riots in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen, reports The New York Times’ Keith Bradsher. Rising food prices may even have contributed to riots in Lhasa.

The Washington Post’s David Ignatius, in a recent column, contends global inflation looms as the new danger to the U.S. economy. Inflationary pressures are “most worryingly in food prices, but also in prices for commodities, raw materials and products that require petroleum energy, which includes almost everything,” Ignatius writes.

Many economists dismiss the fuss about global inflation as overdone. Should investors worry that China is in the early stages of a tumultuous price spiral comparable to bouts of inflation it suffered in the 1990s? “Even the most superficial look at detailed figures leads to a fairly emphatic ‘no,’” declares UBS economic John Anderson in a recent note to clients. “The evidence suggests the current spike in prices will be temporary, fading away by the second half of 2008.”

Anderson contends that, unlike the 1990s, when inflationary pressures were broadly based, the current price spike is almost entirely limited to food items, which make up less than a third of urban household expenditure. When food is excluded, China’s core inflation rate drops to 1.6%.

Officials at China’s top planning agency, the National Development and Reform Commission, may be coming around to that point of view. Today, as Paulson decried the futility of price controls, the NDRC relaxed controls on dairy and cooking oil, suggesting that it believes that, in at least some sectors, inflationary pressures have peaked.

But Stephen Roach, Asia chairman at Morgan Stanley, insists the inflation threat is real. “I’ve seen this movie before,” he writes in this piece in the Wall Street Journal. “It takes me back to the early 1970s” when Fed chairman Aurthur Burns dismissed the significance of rising food and energy prices as external shocks, and focused instead on core inflation with disastrous consequences. Roach’s conclusion: “China cannot afford to ignore the lessons of America’s most painful policy blunder on the inflation front.”

Read also http://www.economist.com/daily/news/displaystory.cfm?story_id=10987640