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Inflation in China Soars Higher

July 10, 2011

China’s surging inflation accelerated to a three-year high last month even as the overheated economy began to cool.

Consumer prices rose 6.4 percent over a year ago, a sharp jump from May’s 5.5 percent rate, data showed yesterday. It was driven by a 14.4 percent rise in politically volatile food costs, up from 11.7 percent in May.

Inflation is politically dangerous for the ruling Chinese Communist Party because it erodes economic gains that underpin its claim to power and can fuel unrest.

The price of pork, the country’s staple meat, jumped 57.1 percent last month, the National Bureau of Statistics reported. That is especially sensitive in a society where poor families spend up to half their incomes on food.

Analysts blame the inflation spike on the dual pressures of consumer demand that is outstripping food supplies and a bank lending boom they say Beijing allowed to run too long after it helped China ward off the 2008 global crisis.

Beijing has raised interest rates five times since October — most recently on Wednesday — but analysts say another rise or tighter limits on bank lending might be imposed if inflation stays high.

The rate hikes also increase the payout on bank deposits, which helps to put money in consumers’ pockets. Still, the 3.5 percent deposit rate after the latest increase is well below inflation, meaning Chinese households lose money by keeping it in the bank.

China’s economy expanded by a sizzling 9.6 percent in the first quarter of the year and even though growth is easing, it is expected to be close to 9 percent in the second quarter. The World Bank raised its forecast of China’s economic growth in April from 8.5 percent to 9.3 percent and said Beijing should tighten monetary policy further.

Chinese Premier Wen Jiabao (溫家寶), the country’s top economic official, expressed confidence last month that inflation was under control. However, he later acknowledged it would overshoot the official 4 percent target for the year.

Last month’s rise in the consumer price index was the fastest since 7.1 percent rate in June 2008.

 

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