Wednesday March 12, 2008

China inflation surges to 8.7% in Feb 2008, highest in 11 years

bloomberg.com :

China's inflation accelerated to the fastest pace in 11 years in February [2008] as food and energy prices jumped, increasing the likelihood the central bank will raise interest rates. Consumer prices climbed 8.7% from a year earlier after gaining 7.1% in January, the statistics bureau said today [11 Mar 2008]. Inflation has surged since March last year on costs of staple foods such as pork and cooking oil. China's worst blizzards in half a century pushed up food and fuel prices because transport bottlenecks disrupted supplies.

Dousing inflation is the government's top priority, Premier Wen Jiabao told China's legislature last week. Six interest-rate increases last year and the highest reserve requirements ever for banks have failed to tame inflation mainly driven by soaring food costs. The key one-year lending rate is 7.47%. The deposit rate is 4.14%, less than half the pace of inflation.

channelnewsasia.com :

China's inflation hit a near 12-year high of 8.7 percent in February, the government said Tuesday [11 Mar 2008] as it called for a "cool-headed" response to one of the nation's most pressing economic concerns. Food prices, the main driver of inflation, were up 23.3% in February from a year earlier. The price of pork, the nation's favourite meat, was up 63.4%.

Coming just days after the central bank governor said there was room for hiking interest rates further, analysts said they expected a broad monetary policy response. For China's communist rulers, inflation is of particular concern because it threatens to lead to social unrest and fuel anger at the government, as was the case in the lead-up to the 1989 democracy protests that the military crushed.

- We've got China CPI inflation going at 8.7%, India inflation going over 5%, Iran inflation flying at 19.6%, South Africa inflation accelerating "unexpectedly" to 8.8%, and Singapore inflation hitting 6.6%, a 25-year record high. There is no question that this inflation is global in nature, accelerating in speed, and taking off exponentially.

At least the Chinese savers have the small consolation that their deposit rates are just about half of the reported CPI inflation rate, compared to Singapore where the savings interest rate compared to the inflation rate is ridiculous and borders on the farcical. For say, DBS, the fixed deposit rate for $50,000 and above, 12-mth deposit, is 1.20%, which is 5.5 times less than the inflation rate, and for amounts less than $50,000 it is 0.825%, which is 1/8 the inflation rate. Savings accounts is where the situation gets farcical. The rate of inflation is running 24 to 26 times faster than the 0.25% to 0.275% savings account interest rate.

And I don't really want to get started on the savings rates compared to the M3-to-GDP differential, which is a more accurate reflection of actual inflation. But if you really want to talk about that, we are talking about inflation, as measured by M3-to-GDP, outrunning savings rates by a factor of 68 to 75 times. It's no wonder that Singaporeans are worried about inflation, as reflected by Singapore being the number 1 city ranking on Google Trends on queries for "inflation".

See also :

1. China CPI inflation rate hits 7.1% in January 2008
2. China in grip of inflation
3. China : 2 billion holiday trips during Chinese New Year threatened by snowstorms
4. China inflation hits American price tags (aka : China's latest export is inflation)

(2008-03-12 08:58:46 SGT) [Biz] Permalink

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