China’s inflation continues to rise

Consumer price index rises by 5.0 per cent and GDP by 9.7 per cent, despite government efforts to cool the economy.

China’s economy has grown at a slightly slower-than-normal pace in the first quarter of 2011, while inflation has accelerated, despite attempts to rein in soaring food and property prices, the latest economic data from the country’s National Bureau of Statistics shows.

Gross domestic product (GDP) in the world’s second-largest economy grew by 9.7 per cent year-on-year in the first three months of 2011, while the politically sensitive consumer price index (CPI) rose by 5.0 per cent.

The CPI had risen by 5.4 per cent year-on-year for March (the fastest pace since July 2008), well above the government’s 2011 target of 4.0 per cent. In February, the CPI rose by 4.9 per cent.

GDP, meanwhile, continued apace with recent trends, having grown by 9.8 per cent in the final quarter of 2010, and 10.3 per cent for the entire year.

“The national economy maintained steady and fast development and had a very good beginning [to the year],” Sheng Laiyun, an NBS spokesman, said.

Sheng said that keeping inflation at 5.0 per cent was “no easy job”, with food prices soaring by 11.7 per cent in the first quarter and housing costs rising by 6.5 per cent.

China “must be persist in managing inflation expectations”, Sheng said. He termed the 0.2 per cent fall in inflation from February to March a “good sign”.

Both Hu Jintao, China’s president, and Wen Jiabao, the premier, have called for more balanced economic growth. Speaking on Friday, President Hu warned that China must boost domestic consumption in order to have more sustainable levels of growth and to balance its trade account.

On Thursday, Premier Wen warned a cabinet meeting that the government needs to be doing more to cool inflation, the Xinhua news agency reported.

“We need to skillfully handle the relationship between promoting economic growth and curbing inflation,” he said.

Government measures not enough

Prices in China have remained high despite four interest rate hikes since October and tougher restrictions on bank lending.

“The Chinese economy is not slowing as planned or desired. Inflation remains stubbornly high,” said Alistair Thornton, an analyst at IHS Global Insight.

“Inflation is a growing problem in the Chinese economy. For the past year, we’ve been watching as there’s been a steady … increase in the inflation rate from about two per cent a year ago to 5.4 per cent now. That’s in spite of a lot of government efforts to try to rein in inflation, including price controls and also some tightening of the monetary policy,” Patrick Chovanec, a professor of economics at Tsinghua University told Al Jazeera.

Last week, premier Wen vowed to ramp up efforts to combat rising costs, and an industry association on Wednesday ordered businesses not to raise prices in response to the government’s efforts to control inflation.

The producer price index, which measures the cost of products at the factory gate, rose 7.3 per cent year-on-year in March, up from 7.2 per cent in February, the NBS figures showed.

Analysts say they expect Beijing to hike interest rates at least one more time in the coming months, and to also allow the Chinese yuan to rise faster against the US dollar, in order to make oil and other imports cheaper in Chinese terms.

China’s government has been mindful of letting inflation get beyond controllable limits, as it could lead to unrest among the country’s 1.3 billion citizens.

“The Chinese government is well aware that inflation following a big lending boom was one of the factors that fed into the unrest around 1988-89 and the Tiananmen protests, so … if people get frustrated with rising prices, particularly rising food prices, there is a potential for social unrest, and that’s one of the reasons that the government is paying attention to this,” Professor Chovanec said.

The sharp jump in food costs will be particularly worrying to the government, as it has come at a time when prices usually fall as the spring harvest comes in, indicating inflationary pressures are stronger than is typical.

The continuing rapid growth in the country’s GDP will also be cause for concern, as the government has in recent days been making efforts to steer China’s expansion to a more sustainable pace.

“Really, [the inflation is] due to expansion of the money supply – trying to have a huge monetary expansion that really helps stimulate [China’s] economy. Some people are looking to these high GDP numbers as the good part of the equation. In fact, they’re really they are part of the problem, because it’s China obsession with high GDP figures that is why they are continuing to pump money into the economy … and that process also boosts inflation,” Chovanec said.

New measures to rein in both growth and inflation could have global repercussions if they cut into Chinese demand for imported iron ore, factory machinery and other foreign goods.

Foreign exchange reserves rise

The NBS data also showed foreign exchange reserves rising past $3 trillion for the first time at the end of March. The world’s largest such reserve has been rising as Beijing buys more foreign currencies in order to control the value of the yuan.

Industrial output from China’s millions of factories and workshops rose 14.4 per cent year-on-year in the first quarter, while fixed asset investment, a measure of government spending on infrastructure, rose 25 per cent.

Retail sales in the first three months of the year were up 16.3 percent.

Source : Al Jazeera, News Agencies


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