FOOD PRICES PUSH UP INFLATION By Richard McGregor in Beijing
Wednesday, June 13, 2007
China may accelerate already expected tightening measures, including further interest rate increases, following a rise in inflation in May driven by a surge in food prices, especially pork, the country's staple meat.
Inflation reached 3.4 per cent in May, the third month in a row it has been on or above the central bank's 3 per cent “comfort zone” and nearly double the 1.9 per cent rate in November last year.
Beijing is traditionally wary of inflation, because of its impact on savings, but also its role in sparking political turmoil in the late 1980s, when it hurt and angered groups on fixed incomes, such as students.
The 3.4 per cent rate outstrips the one-year deposit rate of 3.06 per cent, leaving savers with negative real interest rates.
Most China economy analysts contacted yesterday said they did not expect the People's Bank of China, the central bank, to push for an immediate rate rise.
“Given that it just implemented three measures simultaneously on May 18, including rate hikes, increases in reserve requirement and widening of trading band for the exchange rate, the central bank will probably wait until the third quarter to take the next policy action,” said Yiping Huang, of Citigroup, in a research note.
Food prices, accounting for about a third of the consumer price index basket, rose by 8.3 per cent in May. The prices of eggs and meat have both risen, but the biggest influence on the basket has come from pork.
Farmers began raising fewer pigs last year when pork prices were soft and feedstock costs were higher. But the prime cause has been a disease late last year that killed millions of pigs and reduced the size of litters.
