China warns about inflation with price
rises at near 12-year highs

12/05/2008 07h35

BEIJING (AFP) - China's inflation rate rose to 8.5 percent in April, staying near 12-year highs, the government said Monday, warning tougher measures were needed to handle the nation's most intractable economic problem.

The figure, released by the National Bureau of Statistics, marked a reacceleration after the consumer price index weakened to 8.3 percent growth in March from 8.7 percent in February.

"Growth in consumer prices remains high," the statistics bureau said in a press release.

"At the moment, we must pay close attention to future price trends and prioritise the control of price increases and inflation even higher."

China's recent bout of inflation has been triggered mainly by soaring food prices, and data from the statistics bureau data showed this remained the case last month.

Overall food prices increased by 22.1 percent in April from a year earlier, while pork, the favourite meat for the vast majority of Chinese, became 68.3 percent more expensive over the same period.

By contrast, non-food prices increased by a mere 1.8 percent in April from a year earlier, according to the statistics bureau.

"It is linked to the fact that the international prices of primary products, and especially grain prices, continue to rise, impacting domestic food prices," the statistics bureau said.

China's communist rulers have made the war on inflation one of their main economic priorities this year, fearing that rising prices could impact social stability as the costs of essentials rocket.

Investment bank Goldman Sachs said the figures were higher than market expectations, suggesting that "it is still far too early to claim success in the battle against inflation."

"As underlying inflationary pressures remain undiminished, it is vital for the government to keep its tightening policy stance to anchor inflationary expectations," Goldman Sachs said in a research note.

Chinese Vice Premier Wang Qishan on Friday warned global inflation posed a threat to the country's speedy growth, saying high prices abroad constituted a major pressure for the economy.

"Global inflation has intensified, creating major outside pressure for China," Wang said in a speech at a financial forum in Shanghai.

The way China is now importing inflation reflects its ever-greater integration with the global economy, foreign economists said.

"China's economy is quite well connected to the world economy," said Louis Kuijs, a senior economist with the World Bank's Beijing office.

"That means many of the price impacts that are being felt at the global level, in global markets for commodities and for food products, are being felt in China as well."

Attention aboard will focus on the role played by the exchange rate of the Chinese currency, the yuan, according to some analysts.

"A higher value for the yuan helps keep a lid on imported inflation by lowering the cost of imported goods," said Jing Ulrich from JPMorgan Securities.

"It also reduces the amount of yuan the central bank needs to print to counteract the impact of China's trade surplus on the exchange rate, reducing domestic money supply growth."

China's major trade partners have for many years lobbied the Chinese government to loosen controls on the yuan and let it appreciate, a campaign that has had some success recently.

Chinese farmers have been among the beneficiaries of the rising food prices, although they, too, have to struggle with inflation.

Rural inflation in April was 9.3 percent, while urban inflation stood at a more moderate 8.1 percent.

In the first four months of the year, consumer prices were up 8.2 percent from a year earlier, according to the statistics bureau.

Original article: AFP
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