Financial Market

Toady China has reported an ii year high inflation high increasing pressure on Beijing to increase interest rates.

After an unusually severe winter and freezing temperatures destroying crop yields, food prices have been pushed up 18.2% in January, leading to an overall inflation rise of 7.1%. The price of pork alone has risen 58.8% in the last twelve months.

Non-food inflation rose only slowly, hitting an annual rate of 1.5%, the figures showed.

In the last three weeks China has had one of the coldest winters on record, and coupled with expected price rises in the run up to the Lunar new year, inflation has risen to its highest level since September 1996, when it was at 7.4%.

The weather that has been experienced in China has also affected power supplies and transport networks.

“The CPI was mainly driven up by factors including the severe snow disaster that ravaged more than half of the country,” the official Xinhua news quoted Yao Jingyuan, the chief economist of the statistics bureau, as saying.

At the same time the country experiences record high inflation Beijing has also been taking steps to slow the growth of China economy which expanded at a 13 year high of 11.4% in January, also increasing prices.

Over the past thirteen months Beijing has raised interest rates six times and told reserve banks to put eleven times more money into reserves. Similar actions are also expected over the next year to control spiralling prices.

“This is not the peak. The peak will probably be in February because China suffered more in February from ice and snow storms,” Chen Xingdong, a senior economist at BNP Paribas in Beijing, said.

For communist China inflation is a particular concern, sparking fears of social unrest, and with the general consensus saying the worst is not over, Beijing is no doubt got radical plans up its sleeves.

Another key sign that the inflation problem is worsening was data released Monday showing China’s producer or wholesale prices were up 6.1% last month from a year earlier, the fastest increase in over three years.

“Energy costs, raw materials, mineral products are all shooting up. Labour costs are also increasing. These have to translate into inflation in one way or another,” said BNP Paribas’s Chen.

With costs of raw materials rising as well as food and energy prices, the countries vast export industries are also in danger of becoming more expensive to international markets. If this happens we could very well see China contributing more towards world inflation.