China's inflation grows as price of food surges

11:12, February 16, 2011      

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A DOUBLE-DIGIT jump in food prices pushed China's inflation higher in January, adding to pressure on the government to cool living costs with more interest rate rises and other measures.

Consumer prices rose 4.9 percent, driven by a 10.3 percent jump in food costs. That was up from December's 4.6 percent rise and close to November's 28-month high of 5.1 percent.

The January figure was less than expected but analysts said great inflationary pressure remained which would push China to keep policies tightened.

A rise of more than 5 percent in the Consumer Price Index, the main gauge of inflation, had been expected. However, it was still higher than December's due to dearer food costs because of the bad weather and rising demand ahead of the Spring Festival holiday.

"February CPI is expected to be about 5.2 percent, and if it is significantly lower than that, we may conclude that inflation in China has changed fundamentally. Or we can say that the CPI indicator itself is quite doubtful in terms of reliability," Gao Shanwen, chief economist with Essence Securities in Beijing, told Reuters.

The National Bureau of Statistics also said yesterday the Producer Price Index, the factory-gate measure of inflation, grew 6.6 percent in January, up from December's 5.9 percent.

The bureau revised the weight of various items in the CPI basket from January to better reflect price changes.

Food costs, which used to account for one-third of the basket, were cut by 2.21 percentage points in the system while residence costs were raised by 4.22 percentage points along with other smaller cuts in tobacco and liquor, clothing, medical costs and household appliances.

The bureau said it also added 13,000 places where it collects sample data, bringing the total number to 63,000, which includes department stores, supermarkets, convenience stores, shopping malls and wet markets.

"The new basket is more scientific and accurate," the bureau said. Compared with the CPI figure calculated in the old form, the new one boosted the rate by 0.024 percentage points.

The change of weight was prompted by many complaints that the CPI did not reflect people's real-life situations.

Li Maoyu, an analyst at Changjiang Securities Co, said that despite the seemingly modest January CPI figure, inflationary pressure remained strong as food prices continued to rise.

"The adjustment did not change the fact that food prices jumped strongly last month," Li said.

"Also, producer prices expanded more than expected, adding pressure for future inflation control."

Food prices rose 10.3 percent from a year earlier in January, compared to December's 9.6 percent. The cost of rice rose 15.1 percent, poultry 10.9 percent, eggs 20.2 percent and fresh fruit 34.8 percent.

Ding Shuang, a Citigroup economist, said the January CPI indicated broader inflation, and more pressures were in the pipeline.

"Inflation remains elevated, inviting more tightening," Ding said.

He expected three more interest rate increases this year, two in the first half and one in the second.

China announced an interest rate rise last Tuesday, a surprising timing as it was the last day of the week-long Spring Festival holiday, reflecting the urgency of taming inflation.

<i>Source:Shanghai Daily</i>
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