Food Prices Fuel China Inflation Fears
BEIJING
(AP) - Grocery shopping has become a painful experience for Zhang
Xueyi. Meat prices have risen 50 percent in the past year, and
eggs and other products are not far behind, forcing the 31-year-old
railway technician's family to spend a third of its $400 monthly
income on food.
"If
prices go up more, we have to pay. We'll cut back somewhere else,"
said Zhang as he hefted bags of eggs, vegetables and rice from
the market down a narrow Beijing lane.
After
a run that has seen sizzling growth top 10 percent for four years,
analysts say China's supercharged economy is facing strains that
could break out into an upsurge of inflation.
So
far the worst damage has been confined to food prices, which jumped
15.4 percent in July over the same month a year ago and drove
overall inflation to a decade-high 5.6 percent. But wages are
rising too, as are the costs of oil and electric power.
Record-setting
exports and a stock
market boom are sending cash flooding through the economy,
stoking demand for goods. The Chinese economy "might have
entered a region where we should be on guard," said a central
bank official, Zhang Tao, quoted last week by the state newspaper
China Securities Times.
If
the trend goes unchecked, the impact could be felt abroad as consumers
who depend on China as the world's low-cost factory have to pay
more for appliances, shoes and other goods. Pinched Chinese consumers
might spend less on foreign goods, widening a yawning trade surplus
that has strained relations with Washington and other trading
partners.
Economists
say the latest price spike is due mostly to temporary shortages
of pork, the staple meat whose price soared 86 percent in July
from a year ago.
Pressure
is growing in energy, where Beijing is holding down retail prices
by blocking state-owned gasoline and power companies from passing
on higher costs, said Nicholas Kwan, an analyst for investment
bank CLSA in Hong Kong.
Chinese
oil refiners are losing $5 per barrel of oil that they process
into gasoline or diesel, he said.
"I
think it's just a matter of time until they have to bite the bullet
and raise domestic prices," Kwan said. "Otherwise they
risk an artificial shortage because oil companies will refuse
to refine oil into gasoline if they are losing money."
Wages
rose 21 percent in the first quarter of the year over the same
period of 2006, according to the government, as companies competed
for labor. Even that rise might not reflect the extent of pressure
faced by employers, because those data cover only government companies,
not the booming private sector.
"There's
very little spare labor for manufacturing
now, so we think we're seeing more wage pressure," said Stephen
Green, senior economist at Standard Chartered Bank in Shanghai.
Add
to rising costs the "wealth effect" produced by a stock
market boom. The country's main stock index is up more than 70
percent this year, making speculators rich on paper and fueling
spending.
Exporters
already are struggling with the steady rise of China's currency,
the yuan, which has pushed up the U.S. dollar prices of their
goods by almost 10 percent over the past two years.
The
price surge has alarmed Chinese leaders, who remember that 1989's
Tiananmen Square pro-democracy protests were driven in part by
anger at raging inflation that exceeded 18 percent a year.
Premier
Wen Jiabao has ordered urgent measures to boost food production,
promising farmers free vaccinations and other aid to raise more
pigs. Local authorities have been ordered to subsidize the grocery
bills of poor families.
Beijing
has raised interest rates three times this year to cool the boom
and avert a rise in inflation. After seeing the July price data,
economists said they expect another rate hike shortly.
Until
now, intense price competition in a Chinese market filled with
low-cost goods has prevented makers of most goods from passing
on rising costs to consumers. But economists say struggling companies
might finally be forced to stand their ground and rise prices.
Last
week, the government said an investigation into rising food costs
found that makers of instant noodles illegally colluded to push
up prices by up to 40 percent.
An official of a noodle trade group defended the increase as a
response to rising raw material costs that have slashed profit
margins to as little as 1 percent.
"If we don't lift the prices, there will be no profit,"
the official, Meng Hesu, was quoted as saying.
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