Wed, Feb 20, 2008 page1

• China's inflation hits 11-year high

  • AP
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  China's inflation rose to its highest level in more than 11 years last month after devastating snow storms worsened food shortages, data reported yesterday showed, and analysts warned there might be sharper increases to come.

  Consumer prices last month climbed 7.1 percent from the same month last year, driven by an 18.2 percent rise in food costs, the National Bureau of Statistics reported.

  Economists warned that despite efforts to ease food shortages, prices could rise even faster this month because of higher wages, soaring costs for coal and other industrial materials and lingering storm effects.

  This month's 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 (宋宇) and Hong Liang (梁紅) in a report to clients.

  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 11.4 percent last year and is expected to expand by at least 9 percent this year.

  Economists expect more interest rate increases this year to cool a boom in lending and investment. Authorities have raised rates repeatedly over the past two years to keep growth in check.

  Letting the yuan rise faster against the US dollar could help to cut China's swollen trade surplus by making exports more expensive in foreign currency terms. That could ease a flood of export revenues flowing through the economy that are adding to pressure for prices to rise.

  Analysts have boosted inflation forecasts for China since last month's storms that killed at least 107 people and destroyed crops across the south.

  Deutsche Bank says inflation could rise as high as 8 percent for the first quarter. Lehman Brothers forecast price rises of up to 7.5 percent this month before the surge eases next month.

  The storms, which began on Jan. 10 and lasted into this month, disrupted government efforts to ease shortages of pork, grain and other goods that are blamed for a food price spike that began in the middle of last year.

  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, news reports said. The price of coal for home heating rose by up to 75 percent.

  Vegetable prices rose by 17.5 percent last month, compared with 9.5 percent in December.

  Last month's consumer price rise was the highest since September 1996, Lehman Brothers said. December's rate was 6.5 percent, also driven mostly by food costs.

  Other indicators showed China faces growing pressures that could push up prices.

  China's producer price index rose by 6.1 percent last month, its highest rate in three years, because of high commodity prices and transportation disruptions blamed on the snow, the government said on 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," Xinhua news agency said.

  Beijing imposed price controls on food last month and has frozen the price of gasoline and other basics since September. But economists warn that such measures 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, a China Daily survey showed yesterday.

  Chinese exporters have been hurt by a 13 percent rise in the yuan against the US dollar over the past three years, which has raised the price of their goods abroad. Some small producers have closed, while others are trying to switch to more competitive products.
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