Wednesday, March 12, 2008

Chinese CPI Jumps to 11 Year Record with 8.7% in February

by Richard York

According to figures by the China’s National Bureau of Statistics, the inflation jumped to an 8.7% which is the fastest pace of inflation in a month in over ten years for the world’s fastest growing economy. As per the Chinese analysts, the rapid price hike is mainly because of high increase in food prices has made the life of pensioners and wager earners in the country particularly difficult. The price hike will put more pressure on the People’s Bank of China, the Chinese Central Bank to hike its standard interest rates the Chinese analysts also added. The 8.7% leap in inflation as against the 7.1% in January this year is the greatest increase the economy has experienced in over ten years.

The Xinhua News Agency reported that China’s main inflationary index had increased by 14.1% during 1992 to 1996. The January inflation for the country had stood at 7.1% and analysts had estimated the February inflation to stand at about 8.0%. As per the National Bureau of Statistics of China, the unexpected inflation rise was mainly because of the hard winter conditions and the price rise because of the Lunar New Year Holiday that pushed the prices of food by 23.2% in February. The prices of food items such as vegetables, meat, eggs, fruits and edible oil grew by almost 50%. Besides hiking, the rate of interest the officials are also likely to put in other macro control steps to tame the inflation rise which has been mounting up from early 2007.

The housing and the boom in the stock market also fuelled inflation for China. Ever since the start of the New Year, the stock market index of China has lost as much as 20% due to concerns of the growing control on credit as well related monetary interventions. On Monday, the Shanghai stock index nosedived by over three percent. The prices of houses in many of China’s biggest cities remained sluggish and the cities included not only Guangzhou and Shanghai but also Beijing.

In the last year, the Central Bank of China hiked its interest rates for as many as five times in order to control the supply of money and tame inflation. Although, the little rises at 0.27 percentage points did not have a significant effect on the consumer price index of China. The Chinese Central Bank governor Zhou Xiaochuan in a recent press conference said that there was indeed scope for more increases in the rates. The governor further added that the time and extend of whatever rate cuts are important things to take into consideration.

An analyst with CITIC Securities in Beijing, Chen Jijun expressed that the worst in fifty years snowstorms as well as the Lunar New Year did take its toll on rising food prices. The analyst further added that after witnessing many months of large increases there is a heightened risk that China will have to experience a broader inflation other than the rises in food prices. The analyst also expressed that inflation in the non-food sector is only 1.65 nonetheless it is increasing.

 

 

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