News / Asia

Inflation Remains High in China

A Chinese couple takes a rest next to a new year decoration on displayed along a shopping district in Beijing, Feb 15, 2011
A Chinese couple takes a rest next to a new year decoration on displayed along a shopping district in Beijing, Feb 15, 2011

The latest data show inflation in China remains stubbornly high, putting further pressure on the government to continue efforts to cool down the economy.

Beijing is battling hard against inflation. Although the latest figures released Tuesday were not as high as forecast, the rate remains steep at 4.9 percent a year.

The increase comes despite moves in recent months to rein in the booming economy and soaring prices.

The National Bureau of Statistics data show inflation remains above Beijing's four percent full-year target.

Inflation is one of the government's biggest concerns as it threatens to eat away at the economy and erode public confidence. High inflation has in the past has contributed to social unrest - something the Communist government tries to contain.

Economist Paul Cavey from Acquire Securities in Hong Kong says the government has tried to bring inflation under control by controlling food supplies, raising interest rates and limiting loan volumes.

He says each carries risks of damaging economic growth. Cavey notes that more interest rate increases may not be the best option as they would see more money rush into China and put pressure on the yuan to appreciate faster.

"It is not like interest rates can't be moved at all," said Cavey.  "They have gone up a bit in the course of the last few months, and will probably rise a couple more times in the course of the next six months or so. But interest rates tend to be a little bit more sticky. The preferred control tends to be in trying to limit the volume of loans in the economy."

Rising food costs remain the biggest threat in the basket that makes up the country's Consumer Price Index. Food prices in January rose 10.3 percent.

With China's poorest families spending up to half their income on food, the rising cost of grain, fruit and other stables strains households.

The government has controlled the supply of vegetables and grains to cool inflation in the past. On Tuesday a Foreign Ministry official said the country has enough wheat reserves that the severe drought gripping the country's grain belt should not affect global prices.

Tuesday's data did not include real estate prices, which also have grown sharply over the past year, creating what many market analysts say could become an unsustainable bubble.

Some information for this report was provided by AP, AFP and Reuters.

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