The Aftermath of Winter In China
In the wake of brutal winter storms in China, there are new worries about the inflation rate. Why are those tied together, you ask? Simple: the storms destroyed many crops and food prices are soaring. Consumer prices in China rose by 8.7% in February alone, topping January's already staggering 7.1%. China's central bank is under pressure to raise interest rates as a result.
Food costs soared 23 percent after blizzards destroyed crops and snarled transport links, causing shortages. China, the biggest contributor to global growth, raised rates six times last year in a failed attempt to curb prices and more increases risk triggering an economic slump as export demand weakens.
“They must raise interest rates big time — at least two to three percentage points this year,'' said Andy Xie, former chief China economist at Morgan Stanley, now an independent analyst in Shanghai.
The key one-year lending rate is at a nine-year high of 7.47 percent. The deposit rate is 4.14 percent, less than half the pace of inflation.
“We need to stay calm and take effective measures,'' the statistics bureau said in a statement. It will be “more difficult to control full-year inflation'' because of the storms, the bureau said. The government aims to cap price gains at 4.8 percent for 2008.
A 23% rise in food prices alone is incredible and indicates that things are bound to get even worse in the short term. Pork has risen some 63% over the price at this time last year. The article does not directly indicate just how bad the damage was to crops, but the price increases indicate that the damage was very bad, indeed. Unless the agricultural sector can recover quickly, things will get even worse.
World news | Gaius Tuesday, 11 March , 2008
By feeblemind, Tuesday, 11 March , 2008 @ 7:13 am
I read the Chinese government raised oil prices 37.1% in January. I have also read that price controls are in effect for some key commodities and can’t be raised without government permission, which will make matters worse if they are left in place for long. . The Chinese save a much higher percentage of their money than Americans. It will be interesting to see how they react to seeing their savings destroyed by inflation. It is going to be very interesting to watch how the situation pans out.
By sam, Tuesday, 11 March , 2008 @ 3:49 pm
Maybe China could take some of their dollar denominated foreign currency reserves and use it to buy food for the folks back home. You know, a little two way trading.
By MikeM, Tuesday, 11 March , 2008 @ 5:37 pm
This will mean one thing here — there go our food prices again!