Food prices force up China's inflation

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The Independent Online

China's inflation rate jumped to 7.1 per cent last month - an 11 year high. The National Bureau of Statistics in Beijing reported that the rise was largely down to an 18.2 per cent rise in food prices, which account for a much larger proportion of Chinese household budgets than they do in the West.

The changing tastes of increasingly prosperous Chinese urban consumers, who can afford more and better meals than their forefathers and their rural cousins, is reflected in a 58.8 per cent increase in the cost of pork, although special factors affecting the livestock trade and poor weather also had an impact on consumer price inflation.

The medium-term rise in inflation in China has been driven by her booming economy which, even after the troubles in the global economy, is still expected to stay in double digit growth next year. Rising inflation in China will also affect the price of Chinese exports, which have for a decade been a strong disinflationary influence in the West as the prices of electrical goods, housewares and clothes produced in the People's Republic have fallen in Western stores.

The Chinese government's chief statistician, Yao Jingyuan, said "the CPI was mainly driven up by factors including the severe snow disaster that ravaged more than half of the country".

The Chinese central bank has tried to subdue inflationary pressures via a series of interest rate increase and reserve requirements on the commercial banks, but the robust state of the Chinese economy and its voracious appetite for raw materials and food has been an inflationary impetus throughout the world.

"Energy costs, raw materials, mineral products are all shooting up. Labour costs are also increasing. These have to translate into inflation in one way or another. The increasing costs are now moving to exports and export prices, so I think we will see China contribute to world inflation," said Chen Xingdong, a senior economist at BNP Paribas in Beijing. However, others were more cautious about the prospect of China now "exporting inflation".

Julian Jessop of Capital Economics in London commented that "anyone worried about import price inflation in the West should focus on the rising share of overall imports that are sourced from low-cost countries such as China. The shift of production to Asia has a way yet to run and should continue to put downward pressure on prices for years to come".