Wednesday, February 20, 2008

Inflation at 11-year high in China

ST Feb 20, 2008

Consumer prices up 7.1 per cent last month; worse to come as producer prices shoot up as well

BEIJING - CHINA recorded its highest inflation rate in 11 years last month after devastating winter storms worsened food shortages, according to data released yesterday.

Consumer prices in January climbed 7.1 per cent from the same month last year, driven by an 18.2 per cent rise in food prices, the National Bureau of Statistics said.

Among individual goods, pork prices shot up 58.8 per cent last month compared with the year-earlier period, while cooking oil prices rose by 37.1 per cent, the bureau reported.

Analysts warned there might be sharper increases to come, due to high costs for coal and other industrial materials as well as the lingering effects of the country's worst winter storms in 50 years.

The 7.1 per cent figure for January was up from the 6.5 per cent seen in December last year and was also the highest since September 1996, when the index rose 7.4 per cent.

The rise in the consumer price index (CPI) coincided with the start of three weeks of freak winter weather in January that hit many parts of China, destroying crops and disrupting power and transport networks.

In some cities, the prices of tomatoes, oranges and other scarce produce doubled during the storms, news reports said.

Nationwide, official data showed vegetable prices rose by 17.5 per cent last month, compared with 9.5 per cent last December.

So far, the inflation spike is confined to food, according to yesterday's data.

Prices for non-food items went up by only 1.5 per cent in January, over the same month last year.

Mr Yao Jingyuan, chief economist at the statistics office, said inflation would ebb in the second half of the year.

'The CPI was mainly driven up by factors including the severe snow disaster that ravaged more than half of the country,' he said.

But the latest figures also reflected a trend that had worsened throughout last year despite wide-ranging government measures to keep a lid on prices and rein in the nation's economy, which expanded at a 13-year high of 11.4 per cent last year.

As part of anti-inflation efforts, China last year raised interest rates six times. It also put a temporary cap on some commodity prices last month.

But taming inflation has become a far tougher task after last month's severe weather.

'This is not the peak. The peak will probably be in February, because China suffered more in February from the ice and snow storms,' said Mr Chen Xingdong, a senior economist at BNP Paribas in Beijing.

Mr Hong Liang and Mr Yu Song, economists with Goldman Sachs, said in a note to clients that the CPI's year-on-year rise this month is likely to exceed 7 per cent.

Another key sign that the inflation problem is worsening was data released on Monday showing China's producer or wholesale prices were up 6.1 per cent last month from a year earlier, the fastest increase in more than three years.

'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,' said BNP Paribas' Mr Chen.



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