Surging food prices have pushed up inflation above the government's targeted level in China, but the impact will likely ease by the end of the year as supply picks up, analysts have said.
China's consumer price index rose 5.6% in July from a year earlier, driven by the 15.4% increase in food prices, fueling concerns that the country may soon enter a period of high overall inflation. Chinese policy makers have been aiming to keep its full year CPI growth within 3%, considered reasonable for an economic growth of above 10%. But food inflation, lead by a 37% increase in meat prices in July, a 36% rise in vegetable oil prices and a 27% rise in egg prices, has thrown up new challenges to government policy makers. International grain prices have risen amid rapid growth in the production of biofuels, while within the country, surging pork prices, due in part to the outbreak of the blue ear disease since last summer, has been the main culprit behind rising inflation. A week ago, China's central bank raised interest rates for the fourth time this year to "stabilize inflation expectations." China also admitted for the first time this week that consumer price inflation might exceed the government's 3% target this year and will come under control only when food-price increases are curbed. Su Ning, a deputy governor of the People's Bank of China, Wednesday said the central bank is watching inflation closely and is ready to take further tightening measures if necessary. "While inflation will ease, it will not drop suddenly," said Royal Bank of Scotland in its recent note. | |
| Government Not Too Worried About Food Price Increases | |
| The Farmers' Daily, a government-backed newspaper in China, said earlier this week in an opinion column largely seen as government view that domestic food price increases so far have been reasonable this year, as prices of agricultural products have remained sluggish for years. China's grain prices are still low compared with global levels while the cost of growing grain is rising because of limited land and water resources, the report noted. China launched a price support program for wheat and paddy last year to ensure farmers get good prices for their crop so they are encouraged to grow more of the same. The government supports reasonable price increases as long as they are manageable, said Chen Wenqing, a senior analyst at China National Cereals Trade Corp. However, the ongoing drought in some northeastern provinces of the country and flooding in southern China still could have an impact on autumn grain output, ensuring food prices won't fall soon. National Development & Reform Commission Chairman Ma Kai told China's National People's Congress Wednesday that the country's autumn harvest faces a "severe situation" because of unfavorable weather. Autumn grain output accounts for a larger proportion of China's annual grain output than summer output and officials have said China's inflation in the second half of the year will depend on autumn output. Some analysts expect corn output in northeastern China to fall by around 6 million tons this year, which despite increases elsewhere, may contribute to an overall decline in output of around 1.4% from 145.48 million tons last year. Autumn grain output data will start coming in from September. | |
| Overall Inflation Unlikely To Get Out Of Control | |
Despite a higher-than-expected inflation growth, China's producer price index, a leading indicator that reflects producer prices that may be passed on to consumers, rose only 2.4% in July from a year ago, down a tad from a growth of 2.5% in June. Nonfood prices also rose only mildly in July, up 0.9% compared with up 1.0% in June. The steady rise in agricultural prices will fuel inflation expectations further, but will become an issue only if employers are forced to raise salaries to help people cope with rising living costs, economists said. "It's very difficult for food prices (to affect) nonfood prices in China as productivity rises faster than unit labor cost," said Ha Jiming, chief economist at China International Capital Corp. Moreover, the current food price inflation won't last for too long, he added. China's pork prices, for example, may stay high till the end of this year, but will likely fall next year amid more supply, driven by higher profits. The profit from raising a pig is now around CNY300 while a reasonable level should be around CNY150, said Chen Qianzheng, meat department manager at COFCO Ltd. Pork prices have been falling for the third week in a row amid increased domestic supply and reduced demand due to high prices, with prices down 6% as of August 24 from early August levels, according to data from the Ministry of Commerce. Vegetable oil prices will also not rise further amid more balanced supply and demand, said Wu Yan, vice general manager of China National Vegetable Oil Corp. Food price inflation may remain high around 15% in August and September, but will likely fall below 10% during October to December, keeping full-year CPI growth at 4.3%, said Ha. | |
No comments:
Post a Comment