China’s Inflation Problem

China’s inflation rate has climbed to a twelve year high with consumer prices 8.5 per cent higher than they were a year ago. Much of this is the result of the spiraling cost of food (22 per cent higher over the last twelve months).

China is indeed one of the factors behind the strong global demand for food which is forcing prices higher, China’s GDP per capita has risen five times as fast as US GDP per capita over the last five years and with it, the demand for meat has increased. It takes around 8kgs of grain to produce 1kg of meat.

Food prices hit the real incomes of Chinese people much more than their western counterparts. Research from Deutsche Bank finds that the weighting of food in the consumer price index varies greatly from country to country:

USA 13.8%
Euro Zone 14.5%
Brazil: 29.3%
Russia: 40.2%
India: 26.9%
China 33.6%

Commodity prices normally fall quite steeply when the world economy enters a slowdown – but there are strong supply-side reasons for believing that the age of cheap food is well and truly over. For the moment the key challenge for the Chinese authorities is to engineer a slowdown in growth to avoid the risks posed by demand-pull and cost-push inflationary pressures.

More here from the BBC website and also from the Times