Food prices fuel inflation in China

Tuesday 18 October 2011

NEW YORK (CNNMoney) -- Prices in China continued to rise at a steady pace in September, a sign that the world's largest nation still faces significant inflation pressures even amid signs of a slowing global economy.

Overall prices were up 6.1% from a year ago, little improved from the 6.2% rise in August. The reading matched the consensus forecast, according to Jay Bryson, international economist at Wells Fargo Securities.
Food prices continued to lead the way, increasing 13.4%, the same as the previous month, and adding 4.1 percentage points to the overall increase.
"Food price increases seems to be, at a minimum, stabilizing, maybe even beginning to recede for some products," Bryson said. Food prices were increasing at a 14.8% annual rate as recently as July.
The Chinese government has been taking steps to try to curb inflation. The People's Bank of China has raised it key interest rates five times since October. And it has also allowed the Chinese currency, the yuan, to appreciate after years of leaving it pegged to the U.S. dollar.
But critics of China charge the yuan is still significantly undervalued and this week the U.S. Senate passed legislation that would threaten steep taxes on Chinese imports unless the yuan is allowed to trade freely.
High unemployment and depressed demand in most of the world's developed economies have kept many price pressures in check. The most recent Consumer Price Index in the United States showed a 3.8% rise in overall prices in the 12 months ending in August. Stripping out volatile food and energy prices, core-CPI rose only 2.0%.
There are some concerns that both the U.S. and European economies are at risk of falling into recession, and that prices could start to fall, a dangerous economic condition known as deflation.
But rapid economic growth in China of has helped take wages higher, said Bryson. That will continue to feed into higher prices there, even if overall growth starts to slow in the second half of the year.
"Certainly commodity prices have come down due to the global slowdown, but you're seeing wage inflation there pick up. Some of that will seep through," he said. "If the Chinese economy suddenly slowed dramatically like it did in 2009, that would be felt in prices. But I don't think you'll see significant disinflationary pressures." To top of page

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