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A customer selects vegetables at a supermarket in Hangzhou, Zhejiang province, China, Jan. 11, 2013. China's inflation rate accelerated in December on rising food prices. (CHINA DAILY/REUTERS)
A customer selects vegetables at a supermarket in Hangzhou, Zhejiang province, China, Jan. 11, 2013. China's inflation rate accelerated in December on rising food prices. (CHINA DAILY/REUTERS)

China’s inflation rate jumps as cold weather hits food supply Add to ...

In China’s managed-capitalist economy, the one thing they cannot control is the weather.

With gentle stimulus trickling down and the world’s second-largest economy showing signs of recovery, December’s inflation numbers were up even more than expected, due largely to unusually cold temperatures that have struck the country from the poor, forested southwestern province of Guizhou to ice-sculpture capital Harbin in the north.

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State news agency Xinhua has called it the coldest winter nationally for 28 years, disrupting both the growing season and supply chains, while in northern China it’s the coldest in more than 40 years.

Emergency shelters have sprung up in Anhui province. Some 400,000 people have been left in a state of emergency in Guizhou province while workers use bamboo poles to clear ice from power lines. There are widespread disruptions in power and running water and an old debate over whether the Chinese government should supply public heating in the south as it does in the north has been resurrected.

But just as important is the cold’s effect on the food supply. Some 180,000 cattle have died from the cold in the north; thousands of hectares of crops have also been damaged.

As a result, while non-food inflation came in last month at a respectable 1.7 per cent, food prices, which make up nearly one-third of the weighting, jumped 4.2 per cent from this time last year. Vegetable prices soared 14.8 per cent year-on-year, or 17.5 per cent month-on-month.

The numbers are expected to get worse in the first two months of 2013, since prices traditionally rise ahead of the Chinese New Year holiday, also known as Spring Festival, which this year falls in mid-February. And 11 days into January, Beijing’s cold temperatures show no signs of abating yet.

“December's CPI rebounded by more than expected, thanks to a seasonal spike of vegetable prices. However, these seasonal swings are likely to fade out by spring and China’s modest pace of growth recovery implies that inflation pressures should stay manageable. All this leaves room for Beijing to keep an accommodative monetary policy,” wrote economists Qu Hongbin and Sun Junwei at HSBC.

In a typically Chinese response to inflation, state media have reported the government will control power and water costs for wholesale agricultural markets, hog producers and transportation and storage companies, and will release vegetables from an official strategic reserve to keep prices down.

Next Friday brings the unveiling of the year’s GDP growth, expected to come in around 8 per cent. While China’s economy is seen to be recovering from the malaise brought on by the Eurozone crisis, most economists have already warned it won’t be strong enough to fuel recovery elsewhere.

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