Houston Community News >> Chinese Inflation Highest in 11 Years
2/18/2008 Beijing- Higher food prices
pushed the annual consumer price inflation rate in China to 7.1 percent
in January, the highest level in more than 11 years, from 6.5 percent in
December, the Chinese National Bureau of Statistics said Tuesday.
Xinhua, the Chinese government news agency, said the statistics office attributed the acceleration in inflation to the timing of the Lunar New Year holidays this year and to fierce winter weather.
Large parts of central and southern China experienced the worst snowstorms in decades in January and early February, disrupting transport links and damaging crops and greenhouses.
Food prices, which make up a third of the consumer basket, rose 18.2 percent in January from a year earlier. Nonfood prices rose 1.5 percent.
Compared with December, prices in January rose a nonseasonally adjusted 1.2 percent.
The higher inflation reinforced expectations that Beijing will stick to a tight monetary policy despite softening economic growth.
Although nonfood price pressures remain mild, the central bank is concerned that inflationary expectations are rising and that higher prices will spread, destabilizing the economy with potentially serious social and political implications.
Economists polled by Reuters had expected an inflation rate of 7.1 percent.
Inflation was last higher in September 1996, when the rate was 7.4 percent.
Gene Ma, chief economist with China Economic Monitor in Beijing, said the Chinese inflation rate would likely rise above 6.5 percent in February and March.
"Inflationary pressure will remain great in 2008, and it should be noted that grain prices may replace pork as a key driver of food inflation," Ma said. "I don't think the monetary authorities will relax policy any time.
Pork has led the increase in food inflation in recent months. Prices have soared in reaction to low prices in 2006, which discouraged farmers from rearing more pigs, as well as rising feed grain costs and an outbreak of blue ear disease that forced farmers to cull pig stocks.
Mole Hau, an economist at Core Pacific-Yamaichi in Hong Kong, said that while the Lunar New Year holiday and storms may have distorted inflation in January and February, the higher prices indicated a need for to revalue its currency.
"We believe that accelerating further the appreciation of the currency will be the way to mop up liquidity stoked by inflows of money from the balance of payments surplus," Hau said. "That is still the major source of inflation in China."
He said he expected inflation in February and March to remain around 7 percent because supplies of food and some other items will still be in short supply due to the effect of the snow storms.
Jun Ma, chief China economist with Deutsche Bank in Hong Kong, said most of the higher food prices occurred in the second half of January and will create momentum for more higher prices.
"My central scenario is that we're going to see two more new highs, going to 7.7 percent in February and 8.1 percent in March," Ma said. "I look for two more interest rate hikes over the next few months, though the timing is uncertain."
He said inflation was entering a dangerous zone of between 7 percent and 15 percent, where inflationary expectations kick in.
Xinhua, the Chinese government news agency, said the statistics office attributed the acceleration in inflation to the timing of the Lunar New Year holidays this year and to fierce winter weather.
Large parts of central and southern China experienced the worst snowstorms in decades in January and early February, disrupting transport links and damaging crops and greenhouses.
Food prices, which make up a third of the consumer basket, rose 18.2 percent in January from a year earlier. Nonfood prices rose 1.5 percent.
Compared with December, prices in January rose a nonseasonally adjusted 1.2 percent.
The higher inflation reinforced expectations that Beijing will stick to a tight monetary policy despite softening economic growth.
Although nonfood price pressures remain mild, the central bank is concerned that inflationary expectations are rising and that higher prices will spread, destabilizing the economy with potentially serious social and political implications.
Economists polled by Reuters had expected an inflation rate of 7.1 percent.
Inflation was last higher in September 1996, when the rate was 7.4 percent.
Gene Ma, chief economist with China Economic Monitor in Beijing, said the Chinese inflation rate would likely rise above 6.5 percent in February and March.
"Inflationary pressure will remain great in 2008, and it should be noted that grain prices may replace pork as a key driver of food inflation," Ma said. "I don't think the monetary authorities will relax policy any time.
Pork has led the increase in food inflation in recent months. Prices have soared in reaction to low prices in 2006, which discouraged farmers from rearing more pigs, as well as rising feed grain costs and an outbreak of blue ear disease that forced farmers to cull pig stocks.
Mole Hau, an economist at Core Pacific-Yamaichi in Hong Kong, said that while the Lunar New Year holiday and storms may have distorted inflation in January and February, the higher prices indicated a need for to revalue its currency.
"We believe that accelerating further the appreciation of the currency will be the way to mop up liquidity stoked by inflows of money from the balance of payments surplus," Hau said. "That is still the major source of inflation in China."
He said he expected inflation in February and March to remain around 7 percent because supplies of food and some other items will still be in short supply due to the effect of the snow storms.
Jun Ma, chief China economist with Deutsche Bank in Hong Kong, said most of the higher food prices occurred in the second half of January and will create momentum for more higher prices.
"My central scenario is that we're going to see two more new highs, going to 7.7 percent in February and 8.1 percent in March," Ma said. "I look for two more interest rate hikes over the next few months, though the timing is uncertain."
He said inflation was entering a dangerous zone of between 7 percent and 15 percent, where inflationary expectations kick in.
(Contributed by Reuters)