Consumer price inflation in China accelerated to the highest
level in more than?10 years as food prices continue to rise,
official figure released on Monday showed, raising the pressure for
the fourth interest rate hike this year.
The Consumer Price Index (CPI), a barometer of inflation, grew
5.6 percent in July, after a 4.4 percent rise in the previous
month, the National Bureau of Statistics said in a statement on its
website.
By contrast, Producer Product Index (PPI), a measure of
inflation at the wholesale level, slowed down to 2.4 percent in
July from June's 2.5 percent, the bureau said on Friday.
In a breakdown of July's CPI figure, food prices jumped 15.4
percent, while non-food items rose only 0.9 percent, the statement
showed.
Among foodstuffs, meat and meat products reported the biggest
jump, up 45.2 percent, followed by a 30.6 percent increase in eggs
and a 30.1 percent rise in cooking oil. Grain prices went up 6.0
percent.
In July, the rural areas saw 6.3 percent price increase,
compared with 5.3 percent for the urban areas, according to the
bureau.
Inflation risks were on the rise, the central bank admitted in
its second quarter monetary report on Wednesday. It vowed to take
necessary measures to keep the basic stability in prices.
China has raised interest rates three times so far this year,
with the latest coming on July 20 when the benchmark one-year
deposit rate rose to 3.33 percent. That rate hike is coupled with a
reduction of interest tax on bank deposits to?5 percent from
20 percent.
However, the return on deposits is still below the inflation
rate, indicating a loss of purchasing power if people put their
money into banks.
That is encouraging an exodus of bank deposits to the country's
red-hot stock market, which has soared 77.53 percent so far this
year on top of a 130 percent rally in 2006, fueling concerns of
bubbles building in the market.
In response, analysts expect the central bank to raise the
interest rates again in the coming months to turn the real interest
rate positive, partly to offset the impact of rising prices and
partly to curb the flow of money into the equity market.
Price hike, especially in foodstuffs, is very sensitive in China
as the Chinese has a relatively low disposable income and food
accounts for a major part in people's daily spending. In 2006, the
disposal income for urban residents stood at 11,759 yuan, and at
3,587 yuan for rural residents.
National Development and Reform Commission (NDRC), the country's
top price regulator, has ordered a crackdown on the manipulation of
food prices, after several industry associations and firms
announced plans to raise prices, including instant noodles and
Chinese fast-food chains.
Meanwhile, the Ministry of Civil Affairs raised the urban
minimum living allowance for low-income families by 15 yuan a
month.
The State Information Center (SIC), a think-tank under NDRC,
agreed on the mounting price hike pressure, but sought to play down
concerns over full-scale, significant inflation in a report on
Friday, citing stable prices of manufactured products.
Lu Zhongyuan of Development Research Center of the State Council
echoed SIC's point. In the first six months, the core CPI,
excluding food and energy, rose a mere 0.9 percent, indicating the
inflation is running at a low level, Lu said.
The rationale behind using core CPI instead of CPI is that food
and energy prices are vulnerable to changes in weather and
international political situations and is not a good reflection of
substantial change in demand and supply.
However, the central bank suggests close attention be paid to
food prices as, unlike in developed countries, food accounts for 34
percent of China's CPI.
The State Information Center put the CPI growth in the third
quarter at 4.3 percent, up from 3.2 percent for the first half of
this year, while anticipating the growth to slow down in the fourth
quarter as food prices will gradually fall due to greater
supplies.
(China Daily August 13, 2007)
