China CPI inflation rate hits 7.1% in January 2008

China's inflation rate hit 7.1% in January, the National Bureau of Statistics said Tuesday [19 Feb 2008], the highest figure in over 11 years. The consumer price index was pushed up by an 18.2% rise in food prices, with the cost of pork jumping 58.8% compared with a year ago, the bureau said. The inflation rate is the highest since September 1996, when the index rose 7.4%.

Inflation in China has continued to rise sharply despite a wide range of government measures to keep a lid on prices and rein in the nation's economy, which expanded at a 13-year high of 11.4% in 2007. As part of those efforts, China last year raised interest rates 6 times and increased the amount of money commercial banks needed to set aside in reserves 10 times. But taming inflation became far tougher in China in January when large swathes of the country endured their coldest winter weather in more than 50 years. In south and southwestern China, snow and ice destroyed crucial winter crops such as wheat, rapeseed and fruit.

And as China struggles to control rising prices, there are increasing concerns that it is exporting its inflation problem. With the cost of raw materials, food and energy rising in China, its vast array of exports are in danger of becoming far more expensive, although the massive source of cheap labour helps to absorb some of those pressures.

- That massive source of cheap labour is demanding higher wages in order to cope with increasing prices. The root cause remains the same in China as it is anywhere else : the money supply growing at a faster rate than the economy. Despite China's GDP growth rate of over 11%, their M3 money supply's growth rate is over 20%, so there you have it.

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