Inflation in China accelerated to 5.5% last month, reaching its highest level in nearly three years.
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The government’s data released June 14 suggested tighter monetary policy might be necessary, although China’s economic growth is slowing down. Bringing inflation under control is a top priority for Chinese leaders.
Besides a rise in global commodity prices, China’s inflation has been fueled by rising food prices, which rose by almost 12% in May.
Soaring food prices are affecting the lives of China’s so-called “urban poor,” such as Beijing resident Xiao Man, who says wages don’t reflect the higher cost of living.
“If it carries on like this then I think it will have a definite impact on our lives, because our overall wages haven’t risen, so if it goes on this way, our quality of life will go down.”
Statistics show that pork prices have risen by more than 40% since a year earlier, and butcher Lou Guoli said some customers were buying noticeably less pork.
“Because all prices are going up, it’s not just meat, all aspects are getting more expensive, so some people are choosing to save money, and especially, they are eating less meat.”
The Chinese government is aiming to contain inflation below 4% this year. However, Hong Kong-based Mizuho Securities economist Jianguang says China’s inflation is likely to stay as a long-term trend.
“In my view it is full-fledged inflation in China. So we have a rate hike, we have very rapid monetary expansion in the past two years, we also have imported inflation and food price inflation. So all come together, so that’s really the reason behind the rising inflation in China. So it’s a trend, it’s really not some short term effect.”
Analysts expect inflation to pick up again in June, to possibly around 6%, prompting the central bank to raise interest rates as soon as this month for the fifth time since October.
Bottom line: China’s inflation accelerated in May to a 34-month high of 5.5%, slightly above expectations, supporting the case for tighter monetary policy even as there are signs that economic growth is slowing down.