China’s inflation rate hits 25-month high
Led by soaring food prices, China’s inflation rate shot up in October to a 25-month high, increasing pressure on the central government to rein in its overheated economy.
China’s consumer price index rose 4.4% from a year earlier, a government statistics bureau reported Thursday, making it highly unlikely the country will meet its inflation target of 3% for the year.
The bulk of that increase was blamed on the rising cost of food, which surged 10% from a year earlier.
A jump in inflation could prompt the Chinese government to introduce more cool-down measures that could shake up the global economy. This could hurt businesses and investors overseas who are increasingly counting on the Asian giant’s growth.
China’s booming economy has been deluged with easy money since 2009, when banks issued a record $1.4 trillion in new loans to stimulate the economy.
The lending initially triggered feverish speculation in real estate and stocks. Now economists say that money has trickled into everything from gold to high-end tea.
The same can be said for food and other commodities. This year alone, speculators have driven up the price of garlic, ginger and mung beans, popular for their medicinal value. The latest target of hoarders is cotton, whose price has jumped 60% since Sept. 1.
“The supply of these things are sufficient, but demand has been exacerbated by hording,” said Janet Zhang, a macroeconomist for Dragonomics, a Beijing-based research firm.
Economists expect inflation pressure to continue as wages increase across China, and worldwide commodity and energy prices rise. Also, the effects of the recently announced U.S. Federal Reserve’s plan to purchase $600 billion in Treasury bonds could trickle into foreign markets.
To counter too much new lending already this year, China’s central bank said that Tuesday it will increase the amount of money banks would have to hold in reserve by 0.5 percentage points, the fourth such increase this year.
The announcement comes on the heels of last month’s surprise benchmark interest rate increase.
