Food prices drive China inflation

05/12/2008

BBC NEWS | May 12, 2008


China's consumer price inflation stood close to a 12-year high in April, official figures showed, as the cost of food continued to take its toll.

Annual inflation rose to 8.5% from 8.3% in March - despite the government having earlier pledged that tackling price rises was a priority.

Food costs rose 22.1% in April from a year earlier, driven by demand for pork. However fresh food prices dipped.

High inflation increases worries that China's economy may be overheating.

"Greater prominence needs to be given to curbing inflation and controlling price rises," said the country's the National Bureau of Statistics

Trade surplus

However, despite the government declaring it wants to tighten monetary policy in the battle against inflation, the authorities have not yet increased interest rates in 2008.

There were six interest rises in 2007.

Instead, banks have been told to increase the amount of money they hold in reserve and curb lending to limit credit growth.

Official data also showed that China's trade surplus in April was $16.7bn.

The surge of money into the country from exports poses a risk of pushing inflation even higher.

Observers say that a global economic slowdown - which is resulting in richer nations importing fewer goods - may cut China's surplus.