Inflation surges to 10-year high

http://www.chinaccm.com 2007-8-14 16:29

    Surging food prices drove the consumer price index (CPI) to 5.6 
percent in July -- the highest in a decade -- the National Bureau of
 Statistics (NBS) said yesterday. 

    But analysts remained confident that it will ease by the year end. 

    Food prices, which make up about a third of the inflation basket, 
rose 15.4 percent year on year last month. 

    Meat prices rocketed 45.2 percent, the highest among all food 
products. Egg and edible oil prices increased by more than 30 percent
 year on year. 

    However, non-food prices rose only 0.9 percent. 

    Core inflation, which excludes food and energy prices, remained 
low at 0.7 percent in the first half of this year, according to the
 NBS. 

    "The CPI growth in July is a bit surprising," said Zhu Baoliang, 
chief economist with the State Information Center. 

    Many economists forecast that it would rise by around 5 percent 
after it hit 4.4 percent in June. 

    The government has taken a slew of measures, such as encouraging 
pig raising and checking price cartels, to increase food supply and
 curb prices. 

    "Price rises are set to slow but it will take some time for those
 measures to show their effect", Zhu told China Daily. 

    Chen Xingdong, chief economist of BNP Paribas Peregrine Securities,
 said prices will not stop rising until November. 

    If the price rises spill over into the industrial sector and lead 
to price hikes of industrial products, the situation will become much
 more serious, as it will indicate a more general inflationary trend,
 Chen warned. 

    For the whole year, the CPI is bound to break the central bank 
benchmark of 3 percent, he said, adding: "Our study shows it may be
 about 3.7 percent." 

    Many economists have forecast it will be close to 4 percent. 

    One or two hikes in the interest rate are widely expected given 
rising consumer prices and other key economic indicators. 

    But Zhu said the rate increases, which are quite possible, will 
not ease price rises. 

    "Price rises of grain (used as animal feed) have remained stable 
and therefore it is not rising costs, but a growing supply-demand 
gap of food products that has pushed up the price index," Zhu said. 

    Interest rate hikes will not dampen demand for food, he added. 

    He said rising inflation has pushed the real interest rate - the 
benchmark one-year deposit rate is 3.33 percent - into negative 
territory.