Consumers feel the squeeze of higher prices
By Wang Yanlin |
November 9, 2010, Tuesday
|
Print Edition
Print Edition
CHINA'S consumer prices continue to rise even though analysts once predicted easing inflationary pressure at the end of this year due to a higher comparative base.
Lu Zhengwei, an analyst at the Industrial Bank Co, said the Consumer Price Index, a main gauge of inflation, may have swollen beyond 4 percent last month. He said it may grow 4.2 percent year on year, the fastest pace since September 2008.
"Surging food costs remain a major driver," Lu said. "What's worse, producer prices may have rebounded last month, which would be the first time this year, and this will increase pressure on future consumer prices."
The Producer Price Index, a factory-gate gauge of inflation, may have advanced 5 percent in October, Lu said. It compared with an increase of 4.3 percent in September.
Market pessimism
Lu is not alone in being pessimistic. The Bank of Communications said in a report that October's consumer prices will set a high for this year. First Capital Securities Co predicted prices may jump 4.1 percent from a year earlier last month.
The National Bureau of Statistics is scheduled to release October's key economic data, including the much-anticipated consumer prices, on Thursday.
In September, China's inflation rate climbed to a 23-month high of 3.6 percent on an annual basis, up from 3.5 percent in August. Food costs, which account for one-third of the CPI basket, rocketed 8 percent.
For ordinary Chinese, they don't need an index to confirm prices are rising rapidly.
Since August, costly mung beans, ginger and garlic have been in the headlines from time to time. Now, the list includes apples, sugar, potatoes, cotton and others.
People feel the effects of cash flowing out of their pockets. In a supermarket in Shanghai, apples with yellow skin are sold at 15 yuan (US$2.40) per kilogram, doubling the price a year earlier.
Last week, there were reports about people in Shenzhen rushing to Hong Kong on buying sprees. They weren't shopping for luxury or imported cosmetics, but food items and other articles for daily use which are sold cheaper in the special administrative region.
According to Xinhua news agency, a pack of salt costs 2 yuan in Shenzhen, but is HK$1.10 (0.90 yuan) in Hong Kong. Apples, eggs, toilet paper and shampoo are also cheaper in Hong Kong.
Only a few yeas ago, it was Hong Kong residents who would come to Shenzhen to spend weekends on shopping trips to save money.
While people in Shenzhen can hop on a bus to get to Hong Kong, most mainland shoppers aren't as lucky and have to find other ways to stave off losses from price rises.
In Shanghai, people have been found queuing in supermarkets when discounts are available for edible oil, soap, and even toilet paper. People buy these goods in large quantities because prices are rising, and these items don't spoil or go bad easily.
This "stocking-up" behavior appears to be on the rise again. In 1998, when the country was in a period of high inflation, people bought in bulk due to fear of price jumps.
New elements
Inflation may not rise as much as in 1998 when consumer prices surged 8.7 percent, but many analysts have raised their forecast for this year.
They now take two more elements into serious consideration: unexpected natural disasters which lead to lower harvests and unexpected speculative funds leaving stock and housing markets to rural land.
"The CPI may stabilize before the end of the year due to the base effect and relatively slower money growth from a year ago," said Shen Minggao, an economist at Citigroup. "But it will stay high, and we predict CPI inflation in 2010 could exceed 4 percent."
He added food price inflation remains a risk next year alongside the effects of excess liquidity and wage inflation.
The Chinese Academy of Social Sciences, a major think tank in the country, also warned last month that China may have to increase its inflation target for 2010 to 4 percent from 3 percent, which was set at the beginning of this year.
Even government officials acknowledged the trend. Fan Jianping, chief economist at the State Information Center, a research unit under the National Development and Reform Commission, yesterday said inflation may exceed 3 percent this quarter due to rising food prices.
"Increasing global liquidity after policy easing in developed economies may push up commodity prices," Fan said. "Excess funds in China may also fuel speculation in agricultural products."
In the first three quarters, China's consumer prices expanded 2.9 percent from a year earlier.
To tame inflation, the People's Bank of China increased interest rates for both deposits and lending by 25 basis points on October 19, the first increase in 34 months.
Stephen Green, an economist at Standard Chartered Bank (China) Ltd, said he expects China will increase interest rates again this year.
Lu Zhengwei, an analyst at the Industrial Bank Co, said the Consumer Price Index, a main gauge of inflation, may have swollen beyond 4 percent last month. He said it may grow 4.2 percent year on year, the fastest pace since September 2008.
"Surging food costs remain a major driver," Lu said. "What's worse, producer prices may have rebounded last month, which would be the first time this year, and this will increase pressure on future consumer prices."
The Producer Price Index, a factory-gate gauge of inflation, may have advanced 5 percent in October, Lu said. It compared with an increase of 4.3 percent in September.
Market pessimism
Lu is not alone in being pessimistic. The Bank of Communications said in a report that October's consumer prices will set a high for this year. First Capital Securities Co predicted prices may jump 4.1 percent from a year earlier last month.
The National Bureau of Statistics is scheduled to release October's key economic data, including the much-anticipated consumer prices, on Thursday.
In September, China's inflation rate climbed to a 23-month high of 3.6 percent on an annual basis, up from 3.5 percent in August. Food costs, which account for one-third of the CPI basket, rocketed 8 percent.
For ordinary Chinese, they don't need an index to confirm prices are rising rapidly.
Since August, costly mung beans, ginger and garlic have been in the headlines from time to time. Now, the list includes apples, sugar, potatoes, cotton and others.
People feel the effects of cash flowing out of their pockets. In a supermarket in Shanghai, apples with yellow skin are sold at 15 yuan (US$2.40) per kilogram, doubling the price a year earlier.
Last week, there were reports about people in Shenzhen rushing to Hong Kong on buying sprees. They weren't shopping for luxury or imported cosmetics, but food items and other articles for daily use which are sold cheaper in the special administrative region.
According to Xinhua news agency, a pack of salt costs 2 yuan in Shenzhen, but is HK$1.10 (0.90 yuan) in Hong Kong. Apples, eggs, toilet paper and shampoo are also cheaper in Hong Kong.
Only a few yeas ago, it was Hong Kong residents who would come to Shenzhen to spend weekends on shopping trips to save money.
While people in Shenzhen can hop on a bus to get to Hong Kong, most mainland shoppers aren't as lucky and have to find other ways to stave off losses from price rises.
In Shanghai, people have been found queuing in supermarkets when discounts are available for edible oil, soap, and even toilet paper. People buy these goods in large quantities because prices are rising, and these items don't spoil or go bad easily.
This "stocking-up" behavior appears to be on the rise again. In 1998, when the country was in a period of high inflation, people bought in bulk due to fear of price jumps.
New elements
Inflation may not rise as much as in 1998 when consumer prices surged 8.7 percent, but many analysts have raised their forecast for this year.
They now take two more elements into serious consideration: unexpected natural disasters which lead to lower harvests and unexpected speculative funds leaving stock and housing markets to rural land.
"The CPI may stabilize before the end of the year due to the base effect and relatively slower money growth from a year ago," said Shen Minggao, an economist at Citigroup. "But it will stay high, and we predict CPI inflation in 2010 could exceed 4 percent."
He added food price inflation remains a risk next year alongside the effects of excess liquidity and wage inflation.
The Chinese Academy of Social Sciences, a major think tank in the country, also warned last month that China may have to increase its inflation target for 2010 to 4 percent from 3 percent, which was set at the beginning of this year.
Even government officials acknowledged the trend. Fan Jianping, chief economist at the State Information Center, a research unit under the National Development and Reform Commission, yesterday said inflation may exceed 3 percent this quarter due to rising food prices.
"Increasing global liquidity after policy easing in developed economies may push up commodity prices," Fan said. "Excess funds in China may also fuel speculation in agricultural products."
In the first three quarters, China's consumer prices expanded 2.9 percent from a year earlier.
To tame inflation, the People's Bank of China increased interest rates for both deposits and lending by 25 basis points on October 19, the first increase in 34 months.
Stephen Green, an economist at Standard Chartered Bank (China) Ltd, said he expects China will increase interest rates again this year.
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