China's Inflation Hits 11-Year High, Analysts Warn Bigger Increases to Come.
China's inflation rose to its highest level in more than 11 years in January after devastating snowstorms worsened food shortages, according to data reported Tuesday, and analysts warned there might be sharper increases to come. Consumer prices in January climbed 7.1 percent from the same month last year, driven by an 18.2 percent rise in costs, the National Bureau of Statistics reported.
Economists warned that despite efforts to ease food shortages, China faces pressure for prices to rise across the board due to higher wages and costs for coal, iron ore and other industrial materials.
February inflation "is likely to be much higher than 7 percent, and might even get close to double-digit levels," said Goldman Sachs economists Yu Song and Hong Liang in a report to clients. "Inflation is likely to have further legs to run."
High inflation could complicate Beijing's efforts to keep the fast-growing economy from overheating and add to pressure to let the exchange rate of its currency, the yuan, rise faster. China's economy grew by 11.4 percent in 2007 and is expected to expand by at least 9 percent this year.
Surging food costs are a political concern for Chinese leaders because they hit the poor majority hard in a society where families spend up to half their incomes on food. Bouts of high inflation in the 1980s and '90s sparked protests, which the government hopes to avoid repeating.
Economists expect interest rate hikes this year but say they should be modest because the key factor driving inflation is shortages of pork and some other food, rather than too much credit. Beijing has nudged up rates over the past two years to cool a lending boom. But it faces the dilemma that more rises at a time when U.S. rates are falling could attract money from abroad, adding fuel to the boom.
Economists say Beijing is more likely to let the yuan rise faster against the dollar. That could make Chinese goods more expensive abroad, reducing the flood of export revenues that are adding pressure for prices to rise. The yuan has risen by 13 percent against the dollar since 2005 but the pace has quickened in recent months.
Analysts have boosted inflation forecasts for China since the January storms, which killed at least 107 people, wrecked crops and destroyed crops across the south. Deutsche Bank says inflation could hit a peak of 8 percent for the first quarter. Lehman Bros. forecast price rises of up to 7.5 percent in February before the surge eases in March.
Investors shrugged off those worries, snapping up blue chips in hopes that fresh investment funds will boost prices. The benchmark Shanghai Composite Index gained 2.1 percent to 4,664.29.
The storms, which began Jan. 10 and lasted into February, disrupted government efforts to ease shortages of pork, grain and other goods that are blamed for a food price rise that began in mid-2007.
Snows paralyzed railways and trucking, disrupting shipments of meat and vegetables. In some snowbound cities, the price of scarce tomatoes, oranges and other goods in street markets doubled during the storms, according to news reports. The price of coal for home heating rose by up to 75 percent.
Nationwide, vegetable prices rose by 17.5 percent in January, compared with 9.5 percent in December. January's consumer price rise was the highest since September 1996, according to Lehman. Non-food prices were up only 1.5 percent from the year-earlier period, the statistics bureau reported. But other indicators suggest China faces growing pressures that might push up prices across the board.
China's producer price index -- which measures prices of goods as they leave the factory -- rose by 6.1 percent in January, its highest rate in three years, due to high commodity prices and transportation disruptions blamed on the snow, the government reported Monday.
"Higher prices at the producer level could lead to rising consumer prices as producers might be pressured to increase prices of consumer products to offset rising costs," the official Xinhua News Agency said.
Beijing is paying farmers to raise more pigs and imposed export curbs to increase domestic grain supplies. Regulators imposed price controls on food in January and have frozen the price of gasoline and other basics since September.
But economists warn that price controls could worsen shortages if they deter farmers and other producers from investing to increase output, which would bring down prices. Analysts worry that sustained inflation might prompt Chinese exporters to raise prices, possibly fueling inflation abroad.
Wages in the Pearl River Delta near Hong Kong, the heart of China's export-driven manufacturing industries, have risen 13 percent over the same period last year as employers try to attract workers amid fears of a possible labor shortage, according to a survey reported Tuesday by the official China Daily newspaper.
Chinese exporters have been hurt by the rising yuan, which has pushed up prices of their goods abroad. Some have closed while others are trying to switch to more competitive products. Among individual goods, pork prices rose 58.8 percent in January compared with the year-earlier period, while cooking oil 37.1 percent, according to the statistics bureau.
China's inflation rose to its highest level in more than 11 years in January after devastating snowstorms worsened food shortages, according to data reported Tuesday, and analysts warned there might be sharper increases to come. Consumer prices in January climbed 7.1 percent from the same month last year, driven by an 18.2 percent rise in costs, the National Bureau of Statistics reported.
Economists warned that despite efforts to ease food shortages, China faces pressure for prices to rise across the board due to higher wages and costs for coal, iron ore and other industrial materials.
February inflation "is likely to be much higher than 7 percent, and might even get close to double-digit levels," said Goldman Sachs economists Yu Song and Hong Liang in a report to clients. "Inflation is likely to have further legs to run."
High inflation could complicate Beijing's efforts to keep the fast-growing economy from overheating and add to pressure to let the exchange rate of its currency, the yuan, rise faster. China's economy grew by 11.4 percent in 2007 and is expected to expand by at least 9 percent this year.
Surging food costs are a political concern for Chinese leaders because they hit the poor majority hard in a society where families spend up to half their incomes on food. Bouts of high inflation in the 1980s and '90s sparked protests, which the government hopes to avoid repeating.
Economists expect interest rate hikes this year but say they should be modest because the key factor driving inflation is shortages of pork and some other food, rather than too much credit. Beijing has nudged up rates over the past two years to cool a lending boom. But it faces the dilemma that more rises at a time when U.S. rates are falling could attract money from abroad, adding fuel to the boom.
Economists say Beijing is more likely to let the yuan rise faster against the dollar. That could make Chinese goods more expensive abroad, reducing the flood of export revenues that are adding pressure for prices to rise. The yuan has risen by 13 percent against the dollar since 2005 but the pace has quickened in recent months.
Analysts have boosted inflation forecasts for China since the January storms, which killed at least 107 people, wrecked crops and destroyed crops across the south. Deutsche Bank says inflation could hit a peak of 8 percent for the first quarter. Lehman Bros. forecast price rises of up to 7.5 percent in February before the surge eases in March.
Investors shrugged off those worries, snapping up blue chips in hopes that fresh investment funds will boost prices. The benchmark Shanghai Composite Index gained 2.1 percent to 4,664.29.
The storms, which began Jan. 10 and lasted into February, disrupted government efforts to ease shortages of pork, grain and other goods that are blamed for a food price rise that began in mid-2007.
Snows paralyzed railways and trucking, disrupting shipments of meat and vegetables. In some snowbound cities, the price of scarce tomatoes, oranges and other goods in street markets doubled during the storms, according to news reports. The price of coal for home heating rose by up to 75 percent.
Nationwide, vegetable prices rose by 17.5 percent in January, compared with 9.5 percent in December. January's consumer price rise was the highest since September 1996, according to Lehman. Non-food prices were up only 1.5 percent from the year-earlier period, the statistics bureau reported. But other indicators suggest China faces growing pressures that might push up prices across the board.
China's producer price index -- which measures prices of goods as they leave the factory -- rose by 6.1 percent in January, its highest rate in three years, due to high commodity prices and transportation disruptions blamed on the snow, the government reported Monday.
"Higher prices at the producer level could lead to rising consumer prices as producers might be pressured to increase prices of consumer products to offset rising costs," the official Xinhua News Agency said.
Beijing is paying farmers to raise more pigs and imposed export curbs to increase domestic grain supplies. Regulators imposed price controls on food in January and have frozen the price of gasoline and other basics since September.
But economists warn that price controls could worsen shortages if they deter farmers and other producers from investing to increase output, which would bring down prices. Analysts worry that sustained inflation might prompt Chinese exporters to raise prices, possibly fueling inflation abroad.
Wages in the Pearl River Delta near Hong Kong, the heart of China's export-driven manufacturing industries, have risen 13 percent over the same period last year as employers try to attract workers amid fears of a possible labor shortage, according to a survey reported Tuesday by the official China Daily newspaper.
Chinese exporters have been hurt by the rising yuan, which has pushed up prices of their goods abroad. Some have closed while others are trying to switch to more competitive products. Among individual goods, pork prices rose 58.8 percent in January compared with the year-earlier period, while cooking oil 37.1 percent, according to the statistics bureau.
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