Galloping food prices boosted Chinese consumer price inflation in July to a 10-year high of 5.6 percent, hardening the case for higher interest rates to keep the world's fastest-growing major economy on an even keel.
The unexpectedly large jump, from 4.4 percent in June, entirely reflected a spike in food prices caused by a shortage of pigs and by flooding across large parts of China. The figure, released by the National Bureau of Statistics, easily beat market forecasts of 4.9 percent and was the highest inflation rate since February 1997.
In remarks published in the China Securities Journal, a senior central bank official, Zhang Tao, said many Chinese economic indicators were now in the "danger zone". Although monetary policy is powerless to do anything about things like bad weather and pig disease, the leap in inflation came days after the central bank, the People's Bank of China, said it was worried about rising inflationary expectations. "With this massive headline number, plus evidence of heightening PBOC concern, we believe the chances of another rate hike soon are very high," said Stephen Green with Standard Chartered Bank in Shanghai.
The central bank has already raised borrowing costs three times this year as part of a raft of tightening measures to prevent the economy, which grew an annual 11.9 percent in the second quarter, from overheating.
Shanghai shares shrugged off the inflation report, striding to a record high after a positive commentary on the market by the official Xinhua news agency. The commentary was taken as a signal that the authorities were pleased by the market's bull run, which has pushed up the index 81 percent so far this year, and were unlikely to take further major action any time soon to cool investors' enthusiasm.
The Shanghai Composite Index was up 2.35 percent at a record 4,860.109 in early afternoon. The price of food, which makes up a third of China's consumer basket, rose 15.4 percent in July from a year earlier, the statistics office said.
Meat prices rose an eye-popping 45.2 percent, reflecting a sharp drop in pork supplies caused by poor profit incentives for pig farmers last year, an outbreak of blue-ear disease and sharply higher feedgrain costs.
Eggs cost 30.6 percent more than in July 2006, food oil 30.1 percent and vegetables 18.7 percent. But annual inflation in non-food items dipped to 0.9 percent from 1.0 percent, indicating that China is not yet transmitting extra inflationary pressures to the world economy. Food accounts for just 3 percent of the country's exports.
"The number is higher than expected and will add to the overall perceived difficulty that central bankers globally are facing in that we continue to have strengthening inflation in the context of significant financial market stress," said Glenn Maguire, chief Asia-Pacific economist for Societe Generale in Hong Kong.
Comments
Comments are closed.