China's January Inflation Rises 7.1 Pct
By JOE McDONALD
BEIJING (AP) — China's inflation accelerated to 7.1 percent in
January — its highest rate in 12 years — after devastating
snowstorms worsened food shortages, setting back government efforts
to cool rising prices, according to data reported Tuesday.
Economists warn that inflation could rise further due to high
costs for coal and other industrial materials.
"Inflation has been mainly driven by food prices, but higher
energy and labor costs are adding upward pressure on prices," said
Jing Ulrich, chairwoman of China equities for JP Morgan, in a
report to clients.
January's sharp rise in consumer prices was driven by an 18.2
percent increase in food costs from the same period a year ago, the
National Bureau of Statistics reported on its Web site.
High inflation could complicate government efforts to keep the
fast-growing economy from overheating and add to pressure to let
the exchange rate of China's currency, the yuan, rise faster.
China's economy grew 11.4 percent in 2007 and, despite slowing
slightly, is expected to expand by at least 9 percent this
year.
Economists expect more interest rate increases this year to cool
a boom in lending and investment. Authorities have raised rates
repeatedly over the past two years to keep growth in check.
Letting the yuan rise faster, especially against the U.S.
dollar, could help to cut China's swollen trade surplus by making
exports more expensive in foreign currency terms. That could ease a
flood of export revenues flowing through the economy that are
adding to pressure for prices to rise.
Analysts have boosted inflation forecasts for China since the
January storms, which wrecked crops and killed millions of farm
animals across the south. Deutsche Bank says inflation could hit a
peak of up to 8 percent for the first quarter of the year before it
eases.
The storms disrupted government efforts to ease shortages of
pork, grain and other goods that are blamed for a food price spike
that began in mid-2007.
January's increase was the highest since September 1996,
according to Lehman Brothers. December's rate was 6.5 percent, also
driven mostly by food costs.
Other indicators suggest China faces growing pressures that
might push up prices.
China's producer price index — which measures prices of goods as
they leave the factory — rose by 6.1 percent in January, its
highest rate in three years, due to high commodity prices and
transportation disruptions blamed on the snow, the government
reported Monday.
"Higher prices at the producer level could lead to rising
consumer prices as producers might be pressured to increase prices
of consumer products to offset rising costs," the official Xinhua
News Agency said.
Analysts worry that sustained inflation might prompt Chinese
exporters to raise prices, possibly fueling inflation abroad.
Wages in the Pearl River Delta near Hong Kong, the heart of
China's export-driven manufacturing industries, have risen 13
percent over the same period last year as employers try to attract
workers amid fears of a possible labor shortage, according to a
survey reported Tuesday by the official China Daily newspaper.
Among individual goods, pork prices rose 58.8 percent in January
compared with the year-earlier period, while other meat was up 41.2
percent and cooking oil 37.1 percent, according to the statistics
bureau.
Chinese leaders are especially worried about the political
impact of rapidly rising food costs, which hit the country's poor
majority hard.
Beijing is paying farmers to raise more pigs and has tried to
increase grain supplies by imposing export curbs. So far, the
inflation spike is confined to food, according to the data reported
Tuesday. They showed prices for non-food items up only 1.5 percent
in January over the same month last year.
But Chinese leaders worry that chronic high increases in food
costs will spread to other parts of the economy.