Chinese inflation hits 12-year high Richard McGregor
Wednesday, 12 March 2008
FT Syndication Service
BEIJING: China's inflation rate hit a new 12-year monthly high of 8.7 per cent in February, fuelling fears that the sharply higher food prices of recent months will spread into other sectors of the economy.
However, economists cautioned that the February number, which was up from 7.1 per cent in January, was unreliable as a monthly figure because of seasonal factors
The impact of China's lunar new year holidays, which fall in the first two months of the year, always makes figures for February difficult to analyse in isolation.
The huge winter storm that disrupted transport and power supplies and travel across swathes of central and southern China in early February has added an extra level of uncertainty.
Still, the 8.7 per cent figure, the highest since May 1996, will cause deep concern for a central government which has been working hard to contain 'inflationary expectations'.
Jonathan Anderson, of UBS, said it was crucial to acknowledge that the 'pattern' of inflation, which was concentrated in food, had not changed.
"Core goods and services prices did not accelerate. Most food items did not accelerate: nearly all of the February increase came from a surge in fresh vegetable prices and a further surge in fresh meat prices," he said.
The government has talked tough on the issue in recent months, freezing the prices for goods still controlled by the state, and ordering local authorities to report 'abnormal' increases in other sectors.
Wen Jiabao, the premier, said in his speech opening the annual session of the National People's Congress last week that fighting inflation was the government's most important priority.
But with inflation persisting much longer than had been expected after last year's pork shortages began to push up prices of staple foods, the difficulties are only becoming greater.
"We expect the latest inflation data to dampen sentiment in the near term and renew investor concerns about the government's ability to control prices," said Jing Ulrich of JP Morgan in Hong Kong.
Andy Rothman of CLSA in Shanghai said he expected food prices to begin to fall by this summer, with CPI reaching 5 per cent for the full year, just ahead of the government's 4.8 per cent estimate.
"The flip side of our optimism on consumer prices is our strong pessimism on manufacturing margins, as producers will be unable to pass on more than a fraction of rising input costs," he said.
BEIJING: China's inflation rate hit a new 12-year monthly high of 8.7 per cent in February, fuelling fears that the sharply higher food prices of recent months will spread into other sectors of the economy.
However, economists cautioned that the February number, which was up from 7.1 per cent in January, was unreliable as a monthly figure because of seasonal factors
The impact of China's lunar new year holidays, which fall in the first two months of the year, always makes figures for February difficult to analyse in isolation.
The huge winter storm that disrupted transport and power supplies and travel across swathes of central and southern China in early February has added an extra level of uncertainty.
Still, the 8.7 per cent figure, the highest since May 1996, will cause deep concern for a central government which has been working hard to contain 'inflationary expectations'.
Jonathan Anderson, of UBS, said it was crucial to acknowledge that the 'pattern' of inflation, which was concentrated in food, had not changed.
"Core goods and services prices did not accelerate. Most food items did not accelerate: nearly all of the February increase came from a surge in fresh vegetable prices and a further surge in fresh meat prices," he said.
The government has talked tough on the issue in recent months, freezing the prices for goods still controlled by the state, and ordering local authorities to report 'abnormal' increases in other sectors.
Wen Jiabao, the premier, said in his speech opening the annual session of the National People's Congress last week that fighting inflation was the government's most important priority.
But with inflation persisting much longer than had been expected after last year's pork shortages began to push up prices of staple foods, the difficulties are only becoming greater.
"We expect the latest inflation data to dampen sentiment in the near term and renew investor concerns about the government's ability to control prices," said Jing Ulrich of JP Morgan in Hong Kong.
Andy Rothman of CLSA in Shanghai said he expected food prices to begin to fall by this summer, with CPI reaching 5 per cent for the full year, just ahead of the government's 4.8 per cent estimate.
"The flip side of our optimism on consumer prices is our strong pessimism on manufacturing margins, as producers will be unable to pass on more than a fraction of rising input costs," he said.