Inflation Nation

It seems a long time ago that China�s inflation got out of control in 1994, and had to be stamped out by then Premier Zhu Rongji. While it is not that bad this time, it is clear that inflationary pressures have become a big issue for the economy. The Chicago Tribune reports:

�The highest inflation in more than a decade is frustrating citizens and unnerving political leaders who are mindful that rising prices have been a volatile factor throughout Chinese history. China’s inflation is also a growing international concern. For years, cheap Chinese imports have helped control inflation in the U.S., but if Chinese exports get more expensive here, they could, in turn, drive up inflation abroad.

�China’s consumer prices soared by 6.5 percent in October, compared with a year earlier, matching a rise in August that was the highest in 11 years. Housing is also on the rise, with home prices growing by a new monthly record of 9.5 percent in October despite government efforts to slow the boom. Driving the increase in day-to-day goods was a 17.6 percent leap in food prices, which draw particular ire in China because people spend a relatively high portion of household income on food. The price of pork, for instance, soared by nearly two-thirds in October, largely because of the pig disease known as blue ear, which has hit the Chinese countryside.

China-focused economists are divided about how far inflation is likely to go. Stephen Green, a Shanghai-based economist for Standard Chartered Bank, said he doesn’t expect China’s inflation to spiral out of control and affect global markets, but that doesn’t assuage the anger of Chinese consumers feeling the pinch.

“The only thing that’s moving up significantly is meat prices,” Green said. “If you’re in the urban areas, your income has been going up 5 or 10 percent a year, so you got used to being able to buy more meat and more food, but all of a sudden that’s not the case.”

So far government efforts to stabilize prices have not solved the problem. In September, the government barred price increases on a wide array of items under state control, from electricity to parking. Regulators have also raised interest rates five times this year and may do so again before year’s end, but those steps have produced little effect.

Moreover, economists suspect that prices are likely to climb still higher before the end of the year. The September price controls prevented refiners from passing on higher crude oil prices to consumers. Refiners simply cut their production of gasoline and diesel, leading to long lines at the pump and a new round of complaints.

Chinese authorities had no choice but to relent. They permitted an increase of about 10 percent in the price of gasoline and diesel. And that, manufacturers say, is likely to push up the price of other goods — extending the cycle of rising prices.�

Recent projections for the year ranged from 4.3 percent to 4.6 percent This is one to watch � from a social (and therefore political), as well as economic � perspective.

See news source:

China in grip of inflation
Amid hard times, leaders trying to reassure citizens
http://www.chicagotribune.com/news/nationworld/chi-china_osnos_bdnov25,1,5220396.story

Source: China Business Blog

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