Asian economies are not doing enough to tighten their monetary policies in the face of rising costs, according to Henderson Global Investors.
It said that currencies must be allowed to appreciate and fuel subsidies scrapped if the region wants to bring inflation to heel.
Asian economies are feeling the heat from record high oil prices and rising inflation. And a growing number have been forced to relook at their fuel subsidies. According to Henderson Global Investors, Asian economies must bite the bullet and avoid shot-term gains.
It said the current combination of oil subsidies, artificially-depressed currencies and untempered growth have kept demand high, despite supply being unable to keep up.
Tony Dolphin, Director of Economics and Asset Allocation, Henderson Global Investors, said: "Central banks have begun to accept that global growth has been too strong, particularly in Asia and emerging economies.
"So what we need to do is see the monetary authorities in those regions raise interest rates to bring growth down to a level to which the world economy, particularly the oil price, can cope."
Henderson Global Investors highlighted Japan as one economy that has been been able to dodge the bullet this time around. Previously suffering from deflation, the current inflationary pressures have served to stabilise the Japanese position instead.
Mr Dolphin said: "The fact that food and oil prices are rising has lifted its inflation rate to just over one per cent, so it's gone from too low an inflation rate to one that's quite normal.
"As a reaction to the oil prices that we saw in the 70's and 80's, Japan has taken enormous steps to make sure that it's very energy efficient. And so while the rise in oil prices is still a bad thing for Japan, it's less of a bad (thing) than it is for many other economies."
For investors reviewing their portfolios, Henderson Global Investors said the best option is to play it defensively, rather than just switching out to other assets, as all classes are likely to be depressed.
Mr Dolphin said: "If you're in an economy where inflation is running ahead of interest rates, then you've got very little option at all. You are likely to see your real savings erode. It doesn't make sense to jump into other assets because they are likely to be under pressure too." - CNA/ms
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