China inflation back at 11-year high

Chinese headline inflation rebounded to its highest level in more than a decade in October driven by soaring food prices, spurring expectations the central bank will continue taking steps to cool the red-hot economy.

The consumer price index rose 6.5 per cent in October from a year earlier, matching August’s 11-year high, after a brief reprieve in September when inflation dropped to 6.2 per cent.

Year of the pig takes a positive turn - Oct-18In a sign of how seriously the government regards inflation, state media reported a stage-managed visit to low-income Beijing families by Premier Wen Jiabao on Monday, during which he vowed to bring rising prices under control.

He blamed global oil and food price increases and said the government would ensure price stability. ”We have methods to ensure supply, we will take many different measures to stabilise prices,” a report on the central government Web site quoted Mr Wen as saying.

China has a history of relatively mild price increases spiralling into double-digit inflation.

Food prices rose 17.9 per cent in October from a year earlier, with pork up 54.9 per cent, fresh vegetables rising 29.9 per cent, and eggs up 14.3 per cent.

Non-food inflation was 1.1 per cent, affected by the government’s decision to raise tightly controlled pump prices for petrol, diesel and jet fuel by 10 per cent in late October.

That was the first rise in 17 months and came in response to shortages that have spread across the country as refiners cut production in the face of huge losses resulting from the difference between record high crude prices and government-fixed pump prices.

Some parts of the country are still reporting diesel shortages that some have blamed on outlets hoarding supplies in the expectation of another price rise.

Higher oil prices helped push producer price inflation up to 3.2 per cent in October from a year earlier.

Analysts now expect the central bank to continue raising interest rates and to introduce more forceful measures to rein in bank lending, which expanded by the largest margin ever in October.

The central bank has already lifted interest rates six times this year and raised the proportion of deposits banks must hold in reserve nine times to an all-time high of 13.5 per cent.

China inflation back at 11-year high

Financial Times
11/13/2007 7:00:16 AM