Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Inflation in China accelerates to a three-year high

July 8, 2011 | 10:33 pm

Fruit600_lo1txtnc China’s inflation rate jumped to a three-year high in June, adding to the risk that fast-rising consumer prices pose to the world’s second-largest economy.

The country’s consumer price index climbed 6.4% from June of last year, compared with a 5.5% rate posted in May, China’s National Bureau of Statistics said Saturday.

The index was driven mostly by soaring food prices, which rose 14.4% from a year ago compared with 11.7% in May.

China is facing a shortage of pork, by far the nation’s most widely consumed meat, while crop harvests have been hurt by floods and prolonged droughts.

In anticipation of the inflation report, China’s central bank increased its benchmark interest rate Thursday for the fifth time since October. 

Zhou Xiaochuan, governor of the central bank, said Friday that taming inflation remained a top priority even though economic growth is expected to slow this year. Reports indicate that manufacturing activity and bank lending have declined in recent weeks.

China has been battling inflationary pressure since the government allowed record amounts of new bank loans to ward off the effects of the global recession, prompting local governments and developers to borrow billions to finance infrastructure and real estate projects. Rising interest rates are threatening to make the resulting high amounts of debt harder to pay off.

Moody’s said this week that the scale of problem loans to the country’s local governments may be greater than Beijing has estimated.

Although it’s unlikely China will meet its inflation target of 4% for the year, Chinese Premier Wen Jiabao said last month he was confident consumer prices could be kept under control.

--David Pierson



Italy and Spain rocked by fears of spreading debt 'contagion'

Dismal U.S. jobs report raises doubts about economic recovery

Amid China's economic transformation, many farmers struggle

Photo: A vendor waits for customers at a Beijing fruit stall. Credit: AFP/Getty Images