A reduced wheat harvest in China due to drought could increase inflationary pressure in the remainder of this year, the China Securities Journal said on Monday, citing government price analysts. A spike in wheat and corn prices last autumn fed into a rise in China's consumer price index, and sparked concerns among central planners that rampant growth in China's food processing and ethanol industries would endanger food security.
"A lower wheat harvest could lift wheat prices, or at least could send a signal to market players to bet on a rise," the newspaper cited XU Lansing, an economist at the price forecast centre of the National Development Reform Commission, China's top planning body.
State-backed think-tank China National Grain and Oils Information Centre this month estimated that China's wheat harvest this summer could fall to 96.43 tonnes, from 99.31 million tonnes in 2006.
Wheat output for the year could fall by 2.5 percent compared with last year, it forecast. CNGOIC estimated that the corn harvest this year could inch up by 1 million tonnes, or 0.6 percent.
Corn prices have climbed sharply in China since mid-2006, and state reserves are estimated to be very low. China's annual consumer inflation slowed a touch in April to 3.0 percent from a more than two-year high of 3.3 percent in March, reflecting a rise in food prices, the main driver of inflation in the past several months.
Food prices rose an annual 7.1 percent in April, slowing from 7.7 percent in March. Stripping out food, April inflation was just 1.0 percent. Wheat prices in Zhengzhou are now almost 9 percent higher than they were this time last year.
Wheat flour prices are about 4 percent higher. Corn prices in Dalliance are up 18 percent, compared with May of last year. Cornstarch prices are up 19 percent.