US hit by price rises in Chinese imports

The price of goods imported from China into the US is rising at a record pace, according to federal government figures, which suggest the American economy can no longer rely on low-cost manufacturing in the Communist state to hold down inflation.

The price of goods from China was up 0.1 per cent in December and up 2.4 per cent over 2007 as a whole. That record annual increase reflected the weakening of the dollar and China's own problems with inflation, which prompted the Communist government to introduce price controls on energy earlier this week.

Overall import prices – taking in goods from all countries outside the US – were up 10.9 per cent in 2007, the Labor Department said yesterday. That is the highest calendar-year inflation rate since the government began compiling statistics 20 years ago.

The figures reignited fears of inflation in the US, leading economists and investors to worry that the Federal Reserve might not have as much room to cut interest rates as hoped. On Thursday, the Federal Reserve chairman, Ben Bernanke, said that he was ready to make "substantive" interest rate cuts to ward off a recession. Yesterday, the Dow Jones Industrial Average had by lunchtime wiped out the gains his remarks had caused the day before.

The high price of imported oil contributed to the growth of import prices in 2007 and pushed the US trade deficit to a 14-month high of $63.1bn (£32.2bn) in November. The trade gap with China, though, fell slightly to $24.0bn from its record level of $25.9bn the previous month. Imports of cheap manufactured Chinese goods have become a mainstay of the US consumer economy, and the US trade deficit with China in the first 11 months of 2007 reached $237.5bn, taking it past the record $232.6bn set for the whole of 2006.

China's 2007 trade gap with the European Union, Beijing's biggest trading partner, rose even faster, expanding by 46 per cent to $134.3bn.