China Expects Inflation to Keep Climbing for a While

Inflation in China this year is set to rise further this month becoming an even greater concern for policy makers. These prices remain high in part by sharp rises globally in the cost of raw materials. Inflation is effecting everyone on the global level as well, causing problems for many other countries.

By BETTINA WASSENER
Published: June 22, 2011
NY TIMES

HONG KONG — The rate of inflation in China, which has become a major issue for policy makers in Beijing this year, is set to rise further this month before moderating later in the year, the National Development and Reform Commission said Wednesday.

The statement from the commission, China’s top economic planning agency, echoed what many independent economists have been projecting for some time: that consumer prices will continue to be pushed up over the summer and will probably prompt more interest rate increases from the central bank in the next few weeks. “Current overall price levels are in the high range and in coming months will remain relatively high, but over all the situation is controllable,” the commission said.

Soaring growth and free-flowing bank loans last year helped fuel sharp rises in the prices of homes and consumer goods. The central bank has responded with a series of steps to rein in lending and has also raised interest rates in small increments four times since last October.

Those measures have begun slow down the red-hot pace of China’s growth, as intended.

The rate of price increases has remained stubbornly high in part because of sharp rises globally in the costs of raw materials. Natural disasters in China also have helped push up the cost of food.

Annual consumer price inflation hit 5.5 percent in May, and many analysts believe the figure could increase to 6 percent or more this month — a sentiment that the Chinese economic planning commission’s statement Wednesday appeared to support.

The commission stressed that inflation rates would moderate later in the year.

Even so, the authorities in Beijing are intensely aware that soaring household bills could lead to widespread public dissatisfaction.

China’s rapid growth has generated higher incomes for many Chinese, and a report Wednesday by Mercer, a human resources consulting firm, said competition for executives in China had become “acute,” leading to double-digit pay increases for them this year.

Still, the rising price of food has a substantial effect on ordinary Chinese. The price of pork, for example, soared to 27.67 renminbi a kilogram, or $1.94 a pound, last week, surpassing a record set in 2008, the state-run China Daily said.

Analysts at the investment bank Nomura commented in a research note Wednesday that retail pork prices would rise even more sharply this month, “which, together with the trend rise in nonfood inflation, means we believe there is a fair chance that C.P.I. inflation may exceed 6 percent year-on-year in June,” referring to the consumer price index.

Alice Woodhouse contributed reporting.

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