China's rising inflation has
spirits falling By Olivia Chung
HONG KONG - China's latest inflation rate
of 4.4% is hitting its citizens in their wallets
as well as their stomachs as prices for staples
such as pork and eggs keep rising. However,
government officials remain optimistic that they
can bring the inflation under control.
Economists and analysts have warned that
China's Consumer Price Index might accelerate by
more than 5% in the absence of
decisive control measures,
with some expecting the CPI to grow by up to 8% by
the middle of next year.
The National
Bureau of Statistics said last month that June's
CPI was up 4.4%, driven by a 7.6% boost in food
prices, which account for about one-third of the
CPI basket.
Faced with the rising prices
of pork and eggs, Liu Chumei, a housewife in
Liantan town in Yunfu city, southern China's
Guangdong province, said her family has no choice
but to keep paying more to eat.
"Of course
we are very unhappy. Food prices are up, but we
still have to eat," she said. Then, without a
pause, Liu listed recent price hikes.
"For
example, lean meat has jumped to 20 yuan [US$2.64]
a kilogram, from 12 yuan about three months ago,
pork prices doubled to 15 yuan a kilogram from 7
yuan, and pork spareribs have doubled from 10 to
20 yuan ... the price of eggs has jumped by 20% to
5 yuan a kilogram," Liu said.
She said she
feels "lost" pondering rising food costs that seem
to have no end in sight and added that she and her
husband - who make about 3,000 yuan a month from
their auto-repair-supplies shop - are unable to
save for their three children's education and are
now moonlighting as bookies for an illegal lottery
that earns them an extra 2,000 yuan a month.
"My household earning is barely enough to
survive on, let alone save on," she said.
Asked whether she will raise the prices of
auto parts at their shop, Liu said, "No, we can't.
We can only raise the prices of supplies which
have already increased, but we can't raise prices
of all the goods. If we did that that we'd lose
all our customers."
Yu Linsheng, a
69-year-old retiree who lives in Ducheng town in
Yunfu city, also complained of price hikes and
said his pension has risen by only 10% since 2000
to a little more than 600 yuan a month, while pork
prices doubled in just three months.
"Once
or twice, there were news reports saying the
government was going to raise the pensions to
counteract the inflation of daily necessities, but
the plans went nowhere. This was because local
governments said they could not offer pension
hikes because of financial difficulties," he said.
"But I am fine because I am a fish eater.
I don't have to eat meat," he added with a smile.
It's not only people in rural areas who
feel the pinch. Yu Chuheng, who manages an art
school in Guangzhou, the provincial capital of
Guangdong, said many restaurants have raised their
prices recently because of rising food costs.
"Although I can cut down on dining out,
I'm afraid that food inflation might broaden to
other areas, including gas," said Yu, who
described himself as a "mortgage slave" to his
apartment and car.
But the people in big
cities seem to have more ways to offset the
increasing food prices. "In view of increasing
food prices, rents and imported goods, my friends,
colleagues and I now are more aggressive in buying
stocks, futures or funds," Yu said.
Wang
Ping, a housewife living in Shanghai, said she and
her neighbors are making long trips to buy food
wholesale at prices 20-30% less than retail. If
she needs to shop closer to home, she said, she
goes there late to get some food at bargain
prices. (Leftover fresh food in Chinese shops is
usually sold more cheaply close to closing time.)
"But usually I don't have much luck
because the food is often sold out before I get
there. I would rather make a longer trip to buy
wholesale," she said.
Although the people
in rural and urban areas feel the pinch, Yao
Jingyuan, chief economist of the National Bureau
of Statistics, insisted that this year's inflation
rise was mainly due to a pork shortage, while
supplies of other foods remained sufficient.
"Under such circumstances, the surge in
food prices is just structural and will stabilize
when policies implemented take effect during the
second half," Yao said, adding that the full-year
CPI will be below 4% - which exceeds Beijing's
full-year target of 3%. The CPI rose 2.8% last
year.
Fan Jianping, a senior analyst at
the State Information Center, a research unit of
the National Development and Reform Commission,
said inflation is within a controllable range.
The government is due to release last
month's CPI data on Monday. Economists forecast
the CPI would rise more than 5% and warned that
the index would continue to rise monthly because
of the government's conservative estimates and
stance, which would eventually lead to delay in
launching strong controlling measures.
Liang Hong, chief economist of Goldman
Sachs, said in a recent report that the CPI is
likely to grow 5.1% in July, 60 basis points
higher than in the previous month.
"We
have long argued that inflation in China,
including food inflation, is mainly driven by
monetary easing and the consequent buoyant
expansion of aggregate demand," she said. "If the
needed policy adjustments get further delayed,
both CPI and asset inflation may be further
boosted as real interest rates sink deeper into
negative territory. In that case, the eventual
'landing' of this overheating episode could end up
being harder than the one in 2004."
Liang
expects that the central bank will further raise
the deposit reserve ratio by a big margin, or more
frequently in the short run.
"But without
a meaningful adjustment in the currency, we
believe it is unlikely that China will raise
interest rates aggressively due to fears over a
further acceleration in foreign-exchange fund
inflows," she said.
Credit Suisse chief
regional economist Dong Tao wrote in a mainland
magazine called Caijing Tianxia that the CPI will
continue to accelerate as food prices rise because
of supply shortages due to floods, drought, and a
massive outbreak of swine "blue-ear disease".
According to the World Organization for
Animal Health, blue-ear disease or porcine
reproductive and respiratory syndrome (PRRS) was
first identified in the United States in 1987.
PRRS first appeared in China in the mid-1990s, and
the latest outbreak is thought to be the result of
a new mutation.
Tao said about 260 million
mu (17.33 million hectares) of agricultural
land, which represents one-fourth of the total 1.1
billion mu agricultural land in China, was
affected by floods and drought. Meanwhile, more
than 25 provinces have reported cases of PRRS,
which has killed more than 45,000 pigs and led to
the slaughter of another 43,000.
"In
addition to increased rents due to lack of labor
supply in cities, the CPI will face ascending
pressure," he said. He expected China's CPI to
grow by 6.5% in the middle of next year and even
8% if the prices of oil and raw materials go up
further.
Olivia Chung is a
senior Asia Times Online reporter.
(Copyright 2007 Asia Times Online Ltd.
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