09/11/2007, 00.00
CHINA
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Inflation rising and rising, month after month

The consumer price index rises 6.5 per cent in August, highest since 1996, although some observers fear it might even be higher. Food is major item affected, which is especially hard on low-income people. Now concern is shifting to pressures prices will have on wages, pushing inflation further up. To avoid protests, the government is setting some prices at a fixed, “political” rate.

Beijing (AsiaNews/Agencies) – Mainland China’s annual consumer price inflation soared to 6.5 per cent in August after reaching 5.6 per cent in July. Propelled by basic food prices the latest jump is the highest since December 1996,.

The National Bureau of Statistics said inflation was driven by an 18.2 per cent leap in the cost of food. Meat prices rose 49 per cent last month from a year earlier, reflecting a shortage of pork. Food oil jumped 34.6 per cent more in August than a year earlier; eggs were up 23.6 per cent and vegetables 22.5 per cent higher. But at a retail level increases have been even greater

In the southern factory town of Tanzhou, food vendors have resorted to putting up signs saying “Higher Inflation”' on their street stalls to explain the prices.

Still food accounts for only a third of the consumer price index; meat for 7 per cent even though is the most important component.

There is great concern that the inflationary spiral might continue and that the government might not be able to contain it.

Since the start of the year banks have raised their interest rates on bank deposits four times, the last in August, but experts believe the actual increase should be higher to have any effect. And the central bank ordered banks on seven occasions to tie up more of their deposits in reserve to reduce monetary supply.

Higher prices will inevitably translate into higher wage demands, especially at the low end of the scale.

Non-food prices rose just 0.9 per cent last from a year earlier, a sign that the government acted to keep prices for export items low, favouring trade at the expenses of salaries.

In August, rural areas saw a 7.2 percent price increase, compared with 6.2 percent for urban areas, according to the bureau.

Since experts do not expect them to slow down over the next two months, soaring prices might lead to street protests.

The situation will be further affected by the effects of droughts, flooding and other natural disasters that have impacted on China’s agricultural sector.

For this reason the Beijing Education Commission to universities and vocational schools in the capital ordered that food prices, quality and quantity must remain unchanged in students' canteens.

The Finance Ministry has also decided to provide subsidies to schools to "lighten the burden" and help schools hold down prices.

This might be quite necessary since students are known for their willingness to act. Last November, several hundred of them at a college in the southern province of Guangdong clashed with school authorities, throwing bottles and breaking tables, to protest over a hike in canteen prices.

China's top economic planner, the National Development and Reform Commission, has also issued a notice requiring local governments to stabilise the price of mooncakes and "severely punish" businessmen who disturb market order as the annual mid-autumn Moon Festival draws near.

With the benchmark one-year deposit rate at 3.60 per cent, the return on deposits is still below the inflation rate. This has encouraged an exodus from bank deposits to the country's stock market, which has doubled so far this year. But for many the stock market is set for a major adjustment and this will mean important losses for investors. (PB)

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