Tue, May 13, 2008 - Page 1 News List

China’s inflation shoots up to decade-high levels


China’s inflation rebounded last month to near decade-high levels, adding to pressure on Beijing to cool rapid price rises and avert possible unrest ahead of the Summer Olympics, official data reported yesterday showed.

Consumer prices last month were up 8.5 percent compared with the same month last year, the National Statistics Bureau reported. That was up from March’s 8.3 percent rate and just short of February’s 8.7 percent, the highest inflation in 12 years.

Consumer prices have jumped since the middle of last year, driven by rises in food costs that hit 22.1 percent last month. The government has been trying to cool price rises for pork, grain and other items by increasing supplies and has imposed controls on basic goods.

“We believe the April inflation data suggests that it is still far too early to claim success in the battle against inflation,” Goldman Sachs economists Yu Song (宋宇) and Hong Liang (梁紅) said in a report to clients.

Also yesterday, the government reported that China’s trade surplus fell about 1 percent last month from the same time last year to US$16.8 billion amid weaker global demand for Chinese goods.

The trade surplus with Europe jumped by 34.8 percent to US$12 billion, while that with the US saw much slower growth, rising by 4 percent to US$13 billion, Chinese customs agency data showed.

The growing Chinese trade gap with the 27-nation EU has prompted Europe to join Washington in lobbying Beijing to ease currency controls and import barriers.

The surge in exports to Europe is due in part to the rise in the euro against the yuan, which makes Chinese goods more attractive to European consumers. The US dollar, by contrast, has fallen against the yuan, making Chinese goods more expensive for Americans.

Soaring food prices are especially worrisome to Beijing because they hit China’s poor majority hardest.

There have been no reports of demonstrations, but bouts of high inflation in the 1980s and 1990s set off protests — an embarrassment that communist leaders want to avoid ahead of August’s Beijing Olympics, which they hope will showcase China as a prosperous, stable society.

For the fourth time this year, China’s central bank yesterday ordered banks to set aside more reserves to curb a boom in lending.

The People’s Bank of China said banks must increase the amount they must hold in reserve by 0.5 percentage points to 16.5 percent of their deposits, effective May 20, a notice posted on the central bank’s Web site said.

China has repeatedly increased the reserve ratio over the past two years to curb rapid growth in lending that regulators worry could lead to a financial crisis.

Excess investment in real estate and other assets is also viewed as one factor behind surging prices in China.

Prices began to rise in the middle of last year as China ran short of pork, grain and some other basic goods.

The government has assured the public that China has enough grain and is paying farmers to raise more pigs.

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