Agflation hits China

In China the CPI over the past year has risen by 4.4%. It is interesting to see the breakdown in that figure and what has contributed to the increase. Food prices have risen by 10.1% whilst non-food has risen by only 1.6%. This increase in food prices has been caused by supply-side factors – agricultural production this year has been affected by a colder than normal winter and serious flooding in growing regions.

The Chinese government are worried about the inflationary pressures building up and it appears that they might look at further tigethening of monetary policy – currently rates are 5.56%. However there is rumour that food price controls and limits on commodity speculation could be imposed not just higher interest rates.

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