China’s inflation rises as food costs surge

A double-digit jump in food prices pushed China’s inflation higher in January, adding to pressure on Beijing to cool living costs with more interest rate hikes and other measures.

Consumer prices rose 4.9 percent, driven by a 10.3 percent jump in food costs, data showed Tuesday. That was up from December’s 4.6 percent rate and close to November’s 28-month high of 5.1 percent.

Beijing has hiked interest rates three times since October to cool rapid economic growth and tamp down inflation. But analysts say it needs to do more to curb soaring bank lending while it also tries to increase food supplies to bring down prices.

“The government is battling with all sorts of problems coming from every front,” said Standard Chartered economist Jinny Yan. “The peak of inflation is yet to be seen.”

Inflation is politically dangerous for Beijing because it erodes the Chinese public’s economic gains and threatens acceptance of communist rule. China’s poorest families spend up to half their incomes on food and are hit hard by price rises.

The government has set a 4 percent inflation target this year, but private sector analysts expect up to 6 percent, which would include an even sharper rise for food.

In January, the price of fresh fruit soared by 34.8 percent over a year earlier, while eggs rose 20.2 percent, the National Bureau of Statistics reported.

Adding to a squeeze on food supplies, China’s wheat-growing northeast is in the grip of a severe drought that threatens its crop. Beijing has launched a $1 billion emergency campaign of cloud-seeding and expanded irrigation.

Economists say Beijing responded too slowly to rising inflation pressures after China rebounded quickly from the 2008 global financial crisis on the strength of massive stimulus spending and a flood of lending by state-owned banks.

Economic growth that hit 9.8 percent in the final quarter of last year is expected to slow this year but stay strong, supporting higher demand for food and consumer goods and helping to push up prices.

Analysts expect at least two more rate hikes by midyear but say monetary policy alone cannot resolve China’s economic challenges.

“Inflation is unlikely to come down substantially in the first half of the year,” said Mark Williams of Capital Economics. Rate hikes alone “aren’t going to bring more crops to the markets.”

Inflation could spill over into higher Chinese export prices. That might raise costs for Western consumers but also could help countries such as Vietnam and India compete with China as suppliers of clothing, furniture and other low-cost goods.

Global Sources, a company that connects Chinese suppliers with foreign customers, said this week that a survey of 232 Chinese companies found 74 percent of them raised prices last year — some by up to 20 percent — due to higher costs for materials and components.

A separate Global Sources survey of 385 foreign buyers last month found 31 percent were increasing purchases from Vietnam due to higher Chinese prices.

Higher inflation also might prompt Beijing to slow the rise of its currency, the yuan, against the U.S. dollar to help its exporters compete. That might add to strains with Washington and other governments that complain the yuan is kept undervalued, giving China’s exporters an unfair advantage and adding to its huge trade surplus.