2008年05月09日10:07
China's inflation problem is getting more complicated. Food prices are rising more slowly, but the costs of other items are starting to climb.
The headline-inflation rate has already come down a bit from its recent peak in February of 8.7% compared to the same period a year earlier, and could decline further in coming months now that prices for key goods such as pork have stabilized. Inflation eased slightly to 8.3% in March, though economists say the reading for April, slated for release next week, likely remained above 8%. Central-bank governor Zhou Xiaochuan said May 4 that he expects more 'moderate' inflation in coming months.
But China isn't out of the woods yet.
Inflation is still high by China's recent standards and, like other nations, the country faces strained global markets for food and other essential commodities. This week, the cyclone that hit Myanmar, a major rice producer, threw even more uncertainty into the outlook for rice prices, which have more than doubled this year. The risk of further food-price shocks can't be ruled out.
Within China, there are also signs that price rises, so far concentrated almost entirely in food, are now spreading to other goods and services. That could be worrisome to policy makers, who have repeatedly declared that their main goal is to prevent isolated food-price gains from turning into broader inflation. Among the risks: Inflation could weaken the consumer spending that has helped support economic growth.
'Nonfood inflation is certain to go higher, and is already creeping up,' said Sun Mingchun, an economist for Lehman Brothers in Hong Kong. 'If food-price inflation goes down, but nonfood inflation goes up, economically it's a big problem.'
The increase in China's consumer-price index excluding food accelerated to 1.8% in March, after hovering at 1% or less for almost all of 2006 and 2007, according to the National Bureau of Statistics. The acceleration likely reflects how higher wages and raw-material costs are feeding into price rises for a broader range of goods, phenomena that have global implications given China's importance as a supplier of many products.
Another contributor is higher rents, thanks to continued price rises in most urban-property markets. J.P. Morgan economists expect nonfood inflation to continue to speed up to an average 2.5% for all of 2008.
Lower headline inflation could reduce pressure on the government to raise interest rates or take other tightening policies. By not sharply restraining overall demand, the government has helped keep one of the growth engines of the world economy humming along at a 10.6% pace in the first quarter.
But rising 'core' inflation could also challenge the relatively mild strategy pursued so far. The central bank hasn't raised interest rates since December, apparently judging that the food-driven increases in inflation will be temporary.
This year, officials have focused mainly on reassuring consumers, so that inflation expectations don't get out of hand, and on allowing China's currency to appreciate against the dollar, which reduces import costs.
The government's own response to slowing headline inflation could further complicate the inflation picture. To try to keep inflation down, the state has put temporary price controls on some food products. Officials have also maintained fixed retail prices for electricity and fuels such as gasoline, which have long been government-set, even as soaring prices for coal and crude oil pushed up costs. That has led to shortages and financial losses for power producers and refiners.
Most economists argue the controls can't be sustained indefinitely. Officials have indicated they do plan to raise domestic energy prices, but are reluctant to do so until inflation recedes.
The shift to lower headline inflation in China may be getting closer. A shortage of pork, the staple meat for most Chinese, has been one of the big contributors to the surge in overall inflation numbers. But domestic food prices have been stable or declining in recent weeks, easing shortage concerns.
For instance, the Ministry of Commerce's weekly surveys show the wholesale price of fresh pork rose steadily to nearly 23 yuan ($3.29) a kilogram as of February. Since then, the price has been basically stable and last week dropped to 22.21 yuan.
Even without declines in prices for goods such as pork, the rate of inflation is likely to ease. The consumer-price inflation passed 5% in July last year, so by July this year the base of comparison for prices will be much higher. If prices don't accelerate, inflation rates will mathematically decline as the year goes on.
The surge in food prices has been a real hardship for the poor, but total consumer spending seems to have weathered inflation well so far. In the first quarter, retail sales, adjusted for the increase in retail prices, were up 13.2%, a rate not much changed from that for the fourth quarter of 2007.
The sales figures are an imperfect measure of actual spending, and some surveys do hint at weakness. But given the strength in many indicators -- for instance, a pickup in imports of consumer goods and strong overall growth in the first quarter -- it does appear that annual inflation at more than 8% hasn't yet hurt spending.
'My best bet is that consumption is continuing to expand rapidly, with households dipping into savings to boost their real spending power,' said Mark Williams, an economist with Capital Economics in London. That suggests households generally believe high inflation will be temporary, he argued. But if it turns out to last longer than expected, households could be less willing or able to draw on savings, and have to cut their spending.
Andrew Batson
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