For finance officials in China, inflation is a worry. For Han Xuetao, it’s a reason to smile.
Mr. Han, who lives in China’s eastern Shandong province, has been growing garlic for 20 years. Never, in that time, have prices for his crops been higher than they are now.
The price of garlic, a key ingredient in many Chinese dishes and an indicator of broader food costs, has shot up more than tenfold from a year ago, largely the result of a late cold snap in the north of the country this spring and a parallel drought in the south that hit crops badly. That’s good news for farmers like Mr. Han, whose produce is suddenly more valuable than ever before, but worrisome for those watching China’s broader economy for signs of inflation.
“A couple of days ago, the price was as high as 6.3 yuan per half-kilogram. That’s the highest [I can remember],” Mr. Han said, sounding quite pleased when reached by telephone Monday.
It’s not only garlic: Ministry of Commerce statistics show the average prices for 18 common vegetables were 44 per cent higher during the first week of May compared with the same period the previous year.
“Everything is more expensive than before,” Mr. Han said.
Just as the world was applauding China for leading the way out of the global recession by posting improbable 8.7 per cent growth last year despite falling demand for its products, inflation is shaping up as the next tripwire in the path of the country’s fast-running economy.
China is to release its April consumer price data Tuesday amid projections that inflation will rise but will remain below the government's annual target of 3 per cent. But many expect it to continue to climb unless Beijing moves to raise interest rates, something it has been loathe to do for fear of slowing overall growth and job creation in this still-developing country.
Beijing might not be able to hold inflation below 3 per cent, a senior government economist admitted on Saturday. “The [3-per-cent] target is ideal. But China faces some difficulties in achieving it,” said Liu Shijin, deputy head of the Development Research Center
The State Information Centre, another government-affiliated think-tank, predicted that prices would rise by 4.2 per cent in the second quarter of this year. “Upward pressure on prices is increasing,” it said in a report released Friday.
The likelihood that Beijing will be forced to intervene in the money markets to curb inflation – along with fears that the European debt crisis could slow demand for Chinese exports – helped push stocks on the Shanghai Composite Index down more than 6 per cent last week to an eight-month low of 2688.38, though it regained some ground Monday.
China is under pressure from the United States and other trading partners to let its currency rise. Critics say the country’s artificially low currency gives Chinese exporters an unfair price advantage. China announced Monday that it had recorded a trade surplus of $1.68-billion last month, 87 per cent lower than the previous April, but reversing a trade deficit of $7.24-billion in March.
China has so far resisted calls to let its currency rise, though many expect it will eventually relent. A stronger currency would allow China more buying power for its imports, providing a check on inflationary pressures.
In response to rising real estate prices, China’s central bank has ordered banks to raise their reserve requirements three times this year, but it has resisted raising interest rates so far.
