LIVING in China has become more expensive. China’s consumer prices last month climbed close to an 11-year high, with new signs that price pressures are spreading from food to the broader economy, raising the prospect of more aggressive monetary tightening. The Consumer Price Index in November soared 6.9 percent from a year earlier, drawing nearer to the record of seven percent posted in December 1996, the National Statistics Bureau reported yesterday. The growth last month followed a 6.5 percent jump in October and pushed the combined figure for the first eleven months to 4.6 percent, way beyond the central bank’s earlier target of less than three percent. Yao Jingyuan, the bureau’s chief economist, estimates the consumer price increase for the entire year could reach 4.7 percent which means another increase next month. “The higher-than-agreed CPI in November confirms policy makers’ increasing concerns about overheating and supports our expectation of more broad tightening measures in the coming year,” said Huang Yiping, an economist with the Citigroup. “While triggered by the food prices, the inflation has evolved into more of a macro economic problem. We expect the government to let the currency rise more quickly, alongside measures directly managing liquidities.” Food prices, which make up about one-third of the CPI basket, rose 18.2 percent last month, compared with a 17.6-percent gain in October. The non-food sector posted a 1.4-percent rise, edging up from the 1.1 percent growth in October. The subcategories of foodstuffs reported big jumps last month: pork costs swelled at 56 percent, even faster than October’s 54.9 percent, while meat and poultry prices galloped to 38.8 percent and edible oil prices rose 35 percent. Vegetable prices also grew 28.6 percent. Rural areas of the country posted a CPI growth of 7.6 percent in November, higher than the 6.6 percent rise in urban areas. “China’s rural areas and the farmers that live there lack financial services and are more vulnerable to increases in living costs,” said Stephen Green, a senior economist with the Standard Chartered Bank (China) Ltd. On Sunday, the National Development and Reform Commission said China would tighten price controls over medicine, education and property among other measures to stabilize cost increases. But Bi Jingquan, vice director of the nation’s top planner, acknowledged that it is “a rather arduous task” to cope with the inflation pressures which may peak in the first half of next year. On Saturday, the central bank announced it would raise reserve requirements for the 10th time this year by one percentage point to 14.5 percent, with the intention of controlling the flow of money in the market and cooling an economy susceptible to overheating. But such monetary policies only tackle the problem on the surface. More efforts, including the upgrading of industrial structures, reducing currency issues and diversifying capital into foreign markets, should be made to cool China’s economy and slow the pace of inflation, analysts said.

Source: China’s CPI rockets to an 11-year record

from Shanghai Daily: Business by Wang Yanlin