Inflation in China worries not only the nation’s leaders, but also concerns U.S. businesses who credit growth in Asia for much of their earnings.
The effects of Japan’s earthquake and tsunami, as well as higher oil prices, may worsen inflation in China, according to a Bank of America-Merrill Lynch report released yesterday and reported in Bloomberg.com. Chinese inflation is expected to rise more than 5 percent in the year to March, pushing the central bank to raise interest rates for the fourth time since October, Reuters reports.
The rate was 4.9 percent in February, above the official target of a 4 percent average this year, the New York Times reports. Food prices alone rose 11 percent in February, though the Chinese New Year holiday may have fueled the jump. The producer price index rose 7.2 percent in February, the biggest increase since October 2008.
A cooling of the Chinese economy has worldwide implications. China’s robust growth has helped offset Recessions in the United States and Europe. Many companies have credited sales in China for strong earnings. The country’s economy grew by 10.3 percent in 2010, the Wall Street Journal reports, and Credit Suisse estimates China will grow 9.2 percent in 2011 despite the government’s attempts to tighten the flow of money.
Inflation is one of the biggest concerns for foreign companies operating in southern China, the nation’s industrial hub, finds an American Chamber of Commerce survey reported in early March in The China Post.
Chinese consumers are also becoming increasingly anxious as companies move to raise prices for such necessities as instant noodles, soap and shampoo. The products sold out in several supermarkets in Shanghai and Nanjing following news reports of price hikes, MarketWatch reports. The companies blamed price increases on rising costs for commodities such as food and fuel.
The worst drought in 60 years threatens the country’s wheat crop, the largest in the world, the New York Times reports. A shortage in China puts extreme pressure on wheat prices and could lead to serious shortages in less affluent countries relying on imported food, the Times said.
Johns Hopkins University Professor Pieter P. Bottelier told the New York Times that inflation could exacerbate huge social inequalities and housing affordability problems in China. He said, “This could breed so much resentment. I’m worried about the social implications.”