The recent surge in the price of pork and eggs has come under close scrutiny to keep a check on inflation. Measures will include higher cost for borrowing, but this raises fears about a fall in stock market values and rising wages.

Beijing (AsiaNews/Agencies) – China’s central bank has set an inflation target of 3 per cent this year. But a substantial surge in food prices has led analysts to doubt official figures, officially showing a consumer price index (CPI) hike of 3.3 per cent for March and 3 per cent for April, especially since food accounts for a third of the CPI basket.

Statistics from the Ministry of Commerce indicated that wholesale pork prices in 36 major cities in early May climbed 43 per cent from a year earlier (10.5 per cent on average in May); egg prices rose 31.6 per cent year on year (5.6 per cent); cooking oil shot up by nearly 40 percent compared with a year earlier (more than 60 per cent for soybean oil); and rice and cereals increased by more than 6 per cent.

Liang Hong, chief China economist at Goldman Sachs Asia, said the pork price surge had pushed up prices of other food products. She predicted the rise in food prices would drive consumer inflation above four percent in the coming months.

But in the big cities like Beijing, Shanghai and Shenzhen the price of pork, which is a staple on the Chinese menu, rose by a third in just one month. And, according to the Ministry of Agriculture, the price for live pigs in April was 71.3 per cent higher than a year earlier,

“Food prices weigh heavily on the consumer price index,” central bank Governor Zhou Xiaochuan said yesterday said during a financial conference in Beijing. And as “long as they are having an impact on the value of the yuan, the central bank will adopt monetary policy to maintain its stability,” he said.

Yet, many are of the opinion that if the central bank intervenes too much the impact on the mainland's volatile stock markets might be negative.

Zhou did not exclude higher interest rates, but added that the “central bank never rules out using a variety of instruments” to reduce monetary supply and contain inflation. In fact, recently Zhou raised banks' reserve requirements.

Still he remains concerned that higher interest rates might negatively affect the country’s volatile stock markets. The Shanghai Stock Exchange lost 8.3 per cent on Monday, and 20 per cent since May 29.

The central bank raised rates twice this year, the last time on May 19, and has asked banks to raise their reserve requirements five times.

Zhou also said that a decision on whether to further raise interest rates will wait till after the May consumer price index figures are released on June 12.

Mainland authorities have always tried to keep inflation under control through a policy of stable food prices and wages, but the ongoing rural exodus and growing pollution have led to lower agricultural output, a problem compounded by frequent outbreaks of animal diseases, especially among pigs.

Inflation is raising the cost of primary commodities and wages negatively affecting foreign investments hitherto attracted by China’s low labour costs.

The hundreds of millions of people living at the edge of the economic miracle are thus at risk and could be the cause of major social unrest. Premier Wen Jiabao recently indicated that he was aware of the potential problem warning that rising food prices might endanger the country’s social stability. (PB)

• china
• food
• prices
• inflation
• consumer
• price
• index
• wen
• jiabao
• liang
• hong
• zhou
• xiaochuan
• central
• bank
• stock
• markets