Pork Prices Have CPI Over A Barrel By DYLAN SUN DYLAN SUN At Isnare.com Ezine Articles

Inflationary pressure continues to build with the consumer price index - a key gauge of inflation - surging 6.5 percent in August, the highest since December 1996. The upward spiral, driven mostly by an 18.2 percent surge in food prices, followed the indicator's rise to a 10-year high of 5.6 percent in July, from 2.2 percent in January. The stock market tumbled 4.5 percent on Tuesday as investors panicked at the news, fearing more tightening measures. Prices of pork and other meat surged 49 percent; cooking oil, 34 percent; and eggs, 23.6 percent, the National Bureau of Statistics said yesterday. Prices of non-food products rose 0.9 percent, the bureau said.

Inflation for the first eight months reached 3.9 percent, and economists and government organizations forecast that the CPI for the whole year will surpass 3 percent, the target set by the central government. Facing mounting price pressures, central bank governor Zhou Xiaochuan told a meeting in Switzerland on Monday that "curbing inflation is our objective". Goldman Sachs' Asia Economics Research Group expects the People's Bank of China (PBOC) to further tighten monetary measures. The bank has raised interest rates four times this year, with the latest on August 21, when the benchmark one-year deposit rate was raised to 3.6 percent.

However, the return on deposits is still below the inflation rate. The PBOC also announced last week, the seventh time in less a year, that it will raise the reserve requirement ratio by 0.5 percentage points for commercial banks to 12.5 percent starting September 25, in a bid to "control excessive bank lending".

However, major central government departments insist that the current inflation, mainly caused by food price hikes, is structural and inflation growth will slow in the fourth quarter. Yao Jingyuan, chief economist with NBS, said the CPI growth will slow after the third quarter because of increased supply of pork and other foodstuffs. The National Development and Reform Commission (NDRC), the top economic planner, said all food demand except pork can be satisfied, and "we see no threat of severe inflation." International standards set annual price hikes of 5 percent as a benchmark of high inflation.

Lu Zhongyuan, a senior researcher at the State Council Development Research Centre, said the measures taken by the government to control price hikes have been effective and that inflation growth will be curbed. However, some renowned economists said the country has entered a cycle of high consumer prices; and warned of an inflation threat. They said record high investment costs, growing wages, increasing consumption demand and price hikes in the international market have fueled inflation fears.

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