October 16, 2007

Lower pork prices may ease economic inflation in China

China's pork prices fell for the second week in a row providing tentative evidence that inflation in the country may be falling after rising to its highest level in more than a decade, the government said on Monday (October 15).

The price of pork, a major inflation factor in China, fell 0.8 percent from October 7 to October 12, according to the National Development and Reform Commission (NDRC). 

Food, which accounts for one third of China's consumer price basket, drove consumer prices up 6.5 percent in the 12 months to August. Non-food prices rose just 0.9 percent.

Economists expect inflation to have eased to 6.2 percent in September. The figures are tentatively due on Oct. 23.

Zhu Baoliang, chief economist with the State Information Centre (SIC), a government think-tank in Beijing, agreed that inflation is likely to ease this month and be stable at 4.3 or 4.4 percent by the end of the year, the China Daily reported.

In contrast to the dip in pork prices, the NDRC said the cost of grain rose 1.2 percent in September.

The outlook for inflation will be the basis for China's monetary tightening. The central bank increased banks' reserve requirements for the eighth time this year on Saturday, a day after releasing surprisingly strong money supply and credit data.

The bank has also raised interest rates five times this year.

Analyst firm Goldman Sachs said they expect only one more 27-basis-point interest rate hike but more effective control of bank lending by the central in the remainder of the year.