China’s inflation is continuing at worrying high levels, and shows no signs of easing.
Figures released yesterday show that inflation rose 8.5% in April from April 2007, and were up on the 8.3% rate in March, but down on the 8.7% in February, which was the highest for 12 years.
Higher food and energy costs were the main drivers, unlike Australia where capacity constraints and rising government charges and rents are playing a big part.
The latest figures from the National Statistics Bureau show food costs rose at an annual rate of more than 22% from April 2007, but non-food costs were only up 1.8%, the same as in March.
Pork, the favourite meat of the vast majority of Chinese, continues to be the main cost problem in the food area: its price jumped 68.3% in April from the same month of 2007 as the country struggles to rebuild supplies after an outbreak of disease last year, and rising input costs lift the cost of feed to pork producers.
The Statistics Bureau said in its statement that the rise in food costs is linked to the fact that the international prices of primary products, and especially grain prices, continue to rise, impacting domestic food prices.
Rural inflation in April was 9.3%, while urban inflation stood at a more moderate 8.1% (compared to April, 2007).
"Growth in consumer prices remains high," the statistics bureau said in a statement. "At the moment, we must pay close attention to future price trends and priorities the control of price increases and inflation even higher."
The Government has price controls on a host of products to try and limit the upward pressure, but the big price push flowing from the terrible winter storms in January and February, are still in the system and showing no signs of easing.
That’s why inflation jumped to 8.7% in January and has remained there. The government controls make it hard to work out the accurate level of cost pressures in China: they could be a lot higher.
The government is targeting inflation of 4.8% in 2008, the same as in 2007, but that is going to be a big ask as to achieve it will require inflation to drop sharply over the rest of 2008 to below an annual rate of 4.8%.
Cost pressures are likely to continue until the Olympics and the question is whether the central government is game enough to lift price controls to allow costs to be more accurately reflected throughout the economy.
Chinese average wages were up a reported annual 18.3% over the first three months of 2008 from the first quarter of 2007.
Producer prices rose 8.1% in April from April 2007, according to figures released last Friday.
Other figures on Friday showed imports rising faster than exports as the rising value of the Yuan makes imported items cheaper.
Export growth is slowing from the frenetic pace of 2007 as the US, Japanese and European economies slow and demand for many Chinese-made products eases.
The January storms and bad weather helped slow China’s growth to an annual rate of 10.6% in the first quarter of this year, down from 11.9% for all of 2007. That was revised upwards and in all probability is again too low, given the unreliability of many Chinese figures. (The sum of provincial growth figures is higher than the national figure!)
Three times this year China’s central bank has ordered lenders to set aside more deposits as reserves, pushing the reserve ratio to an all time high of 16%, but it has been loath to lift interest rates.
And what impact will the big earthquake in Sichuan province have on China is there is a lot of damage and dislocation?
Already more than 8,000 people are known to have died and the toll will rise. Food, chemicals and other production has been affected. It could have a major impact on Chinese inflation, growth and the economy generally.
