China’s inflation accelerated to close to the fastest pace since 1996 as food prices soared and the government slowed gains by the yuan.
Limited Supply: A clerk stocks China Mengniu Dairy Co. food products at a supermarket in Beijing. Food prices jumped 22% in April, threatening social stability as the nation prepares for the Olympic Games
India’s inflation also accelerated at the fastest pace in almost three and a half years on Friday. Wholesale prices rose 7.61% in the week that ended on 26 April from a year earlier, after gaining 7.57% in the previous week.
Consumer prices in China rose 8.5% in April from a year earlier, the National Bureau of Statistics said on Monday, after gaining 8.3% in March. That topped the 8.2% median estimate of 22 economists surveyed by Bloomberg.
Food prices jumped 22%, a threat to social stability as the world’s most populous nation prepares to host the Olympic Games this summer. Faster currency appreciation, while reducing import costs, also risks attracting more speculative funds into an economy flooded with cash.
“The yuan needs to appreciate at a much faster pace to reduce import costs,” said Li Wei, an economist at Standard Chartered Bank Plc. in Shanghai. “The inflation situation is very serious and the government needs a clear solution.”
The yuan ended at 6.9886 versus the dollar in Shanghai on Monday.
The currency has climbed about 0.4% versus the dollar since 31 March after a 4.2% increase in the first quarter, the biggest jump since the end of a fixed exchange rate in 2005.
The price of crude oil has doubled in the past year and copper has climbed about 24% since the start of this year, adding to China’s import bill. Labour costs are also rising.
The jump in food prices was more than the 21% increase in March. Meat climbed 48%. Non-food prices climbed 1.8%, an unchanged pace.
“Inflation is China’s number one economic issue,” said Donald Straszheim, vice-chairman of Newport Beach, California-based Roth Capital Partners Llc.
Three people died in last year’s food stampede in China, at a cooking oil sale at a Carrefour SA supermarket in Chongqing, underscoring the threat to stability from rising prices.
Central bank governor Zhou Xiaochuan said on 10 May that the government will boost agricultural supplies to cool prices. Rice, wheat, corn and soybeans have risen to records this year, boosting hunger and malnutrition around the world, according to UN secretary general Ban Ki-moon.
China’s economy, the world’s fourth largest, expanded 10.65 in the first quarter from a year earlier, down from the 11.9% pace for all of 2007, as exports cooled and blizzards closed factories. Consumer prices rose 8.7% in February, the biggest gain since May 1996. “Price pressures are still big,” said Isaac Meng, senior economist at BNP Paribas SA in Beijing. “Higher inflation makes people’s daily lives harder and weaker growth threatens jobs, and the government can’t ignore either.”
Central banks around the world are grappling with faster inflation and slowing growth. In Asia, Bank Indonesia on 6 May raised interest rates for the first time in more than two years and the Reserve Bank of India last month twice ordered lenders to set aside more reserves.
China’s Zhou said on 5 May that there’s a possibility interest rates will rise. The central bank has kept the benchmark one-year lending rate unchanged at a nine-year high of 7.47% this year after six increases in 2007.
The government is concerned that rates higher than in the US and the strengthening yuan are attracting overseas money to an economy awash with trade cash—threatening to fuel inflation.
The People’s Bank of China will raise interest rates at least once this year, according to 11 of 15 economists surveyed by Bloomberg News in April.
China’s central bank has ordered lenders to set aside more deposits as reserves three times this year, pushing the ratio to a record 16%. It also sells bills to drain cash from the financial system.
The government is targeting inflation of 4.8% this year, the same as the actual rate in 2007.
The average wage in Chinese urban areas climbed 18.3% in the first quarter from a year earlier to 6,524 yuan ($935). Producer prices jumped 8.15 in April from a year earlier, the fastest pace since November 2004. Bloomberg
India’s measures to rein in inflation
Rs8,000 a tonne tax on export of basmati rice
15% export tax on foreign sales of pig iron or other primary forms
15% export tax on ferrous items got by direct reduction of iron ore, other spongy ferrous products
15% export tax on ferrous waste and scrap, and on semi-finished products of iron or non-alloy stee
15% export tax on flat rolled products of iron or non-alloy steel, hot rolled, not clad, plated or coated iron or non-alloy steel
10% export tax on specified roll products, including cold-rolled coils, pipes and tubes
5% export tax on galvanized steel in coil and sheet form