Inflation hits all time high since 1997 crises
Beijing (AsiaNews/Agencies) –news record for Chinese inflation, up 5.6% in July; it is the highest increase since February 1997, the year of the South East Asian financial crises. After the +4.4% in June, containment measures put in place to halt increasing prices, above all in the food sector have proved useless. There has instead been a minimal increase in export prices.
According to official data the price of food, which makes up a third of the consumer basket, rose 15.4 per cent last month from a year earlier; meat prices increased 45.2 per cent, eggs 30.6 per cent, food oil 30.1 per cent and vegetables 18.7 per cent. But unofficial figures gathered in the market place indicated much higher increases.
But annual inflation in non-food items actually dipped to 0.9 per cent from 1 per cent, indicating the mainland was not yet transmitting extra inflationary pressures to the world economy. Analysts believe that this marks the decision to keep prices of non food products low, above all through tax relief and financial incentives and low labour costs. Food makes up only 3% of export products, but the increase in their prices means a rapid devaluing of incomes.
The latest inflation figure is likely to mean more Chinese interest rate rises. Rates have already risen three times in the past six months. That is encouraging an exodus of bank deposits to the country's red-hot stock market, which has soared 77.53 %so far this year on top of a 130 % rally in 2006, fuelling concerns of bubbles building in the market. But important government economists are leaning away from taking further measures, preferring a “wait and see” approach.
Zhu Baoliang, chief economist at the State Information Centre, a government think-tank in Beijing, noted that price rises still had not spilled over to other parts of the economy adding that these factors could be “temporary”. He recalls that in 2004 a jump in grain prices propelled the annual inflation rate to 5.3 per cent in July and August that year. But it soon subsided to 2.4 per cent by December.
Lu Zhongyuan of Development Research Center of the State Council underlines that 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”. On the contrary, the Central Chinese Bank maintains that the rise in prices does not depend only on “temporary factors”.
Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong, said in a July 30 note ``China's inflation is getting out of control and the government is behind the curve”.
Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai, told the South China morning Post that the inflation hike does not depend on the food sector alone, but has its roots in the rapid growth in industrial output, increased money circulation, record hikes in the stock market and the recent jumps in the housing market. He recommends “prudence”, because “the causes of the general inflation may already be in the system”.
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