Although analysts were expecting inflation to peak for the year in June, the figures are troubling, particularly because food prices rose 14.4 percent from a year ago, up from 11.7 percent in May, suggesting that Beijing may have a difficult time reining in rising prices.
The price of pork — a major food staple in China — rose 57 percent in June alone, making it the biggest contributor to inflationary pressure. Beijing is trying to slow growth in what is now the world’s second largest economy in the hopes of preventing inflation and high property prices from undermining an economy that has grown strongly over the last two years.
A $586 billion government stimulus package in 2009 and aggressive lending by state-owned banks, much of it aimed at investments in real estate construction and government infrastructure projects, have driven the economy during the last two years. But now, to moderate that growth, Beijing is trying to tighten credit by restraining bank lending and is raising interest rates.
On Thursday, China’s Central Bank raised interest rates for the fifth time since October. And over the last few months there are signs that manufacturing and economic growth have moderated. Last month, Prime Minister Wen Jiabao said the government had succeeded in one of its chief policy goals this year: bringing inflation under control. But he also conceded that the government might not meet its inflation target of 4 percent this year.
Indeed, rising wages among migrant workers, higher prices for food and gasoline, as well as droughts and flooding in key agricultural regions have all contributed to inflation this year. Many analysts say that China will succeed in its efforts to battle inflation and that the economy will ease but not face a difficult hard landing later this year. But with severe power shortages expected this summer and few signs of food prices easing, it’s unclear whether Beijing will be successful.
Many analysts, though, say that for the last seven years, Beijing has repeatedly faced this cyclical pattern of volatile growth followed by government-orchestrated slowing, then aggressive bank lending and robust property markets rebounding, time and again.
That has been the see-saw nature of China’s economic boom for much of the decade, with the country generally registering 10 percent annual growth. Yu Song, a Hong Kong-based analyst at Goldman Sachs, said pork was the main contributor to the big jump in the consumer price index while non-food inflationary pressure seemed to be easing.
She said her worry was that with the economy moderating, the government could reverse its tightening measures too soon in the hopes of reigniting growth — creating bigger problems. The main risk on this front is a significant policy loosening as it happened in the second half of 2010, she wrote in a report released Saturday.
Article source: http://www.nytimes.com/2011/07/10/business/global/chinese-inflation-jumps-again-as-pork-prices-soar.html?partner=rss&emc=rss
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