August 10, 2010

Rising pork prices fuel inflation fears in China

China's pork prices are on the rise again, putting pressure on inflation, according to reports.

Prices of pork, which accounts for around 3% of China's Consumer Price Index (CPI), grew by 0.1% Saturday (Aug 7) compared to a day earlier and by around 17% compared to June. The increase in food prices, which accounts for about a third of the index, has been blamed on bad weather.

According to the National Bureau of Statistics (NBS), China's CPI rose 2.9% compared to the same time last year. The index rose a year-on-year 3.1% in May, 2.8% in April and 2.4% in March.

The National Development and Reform Commission (NDRC), the country's top economic planner, predicted that the CPI would maintain 3% for the rest of the year and would drop in October.

NBS said China's producer price index (PPI), measuring industrial products prices, increased 6.4% in June and 6% in the first half.

According to analysts, PPI hit a record high in the second quarter and started declining, adding that the CPI will peak in the third quarter.

In November 2008, a RMB4 trillion (US$590.93 billion) stimulus package was introduced in order to boost China's economy, which also spurred huge credit expansion.

According to the People's Bank of China (PBC), the country's central bank, China's foreign reserves jumped to US$2.4 trillion last year, further increasing the country's inflation pressures. In addition, China has increased wheat reserves this year, a move to secure the country's food and is viewed as increasing inflation pressures by surging wheat demand.

Meanwhile, China's gross domestic product grew by 11.9% in the first quarter this year, and by 11.1% for the first half of the year, according to the NBS.