Warning signs in January CPI
0 
China's National Bureau of Statistics (NBS) has released this year's first Consumer Price Index (CPI). The January CPI rose 4.9 percent on a year-on-year basis. This number is lower than the public expectation and it is questionable whether it accurately reflects inflation in China because the method used to calculate CPI has changed.
The revised method cut the weighting of food in the index and increased the weighting of residency costs (mainly housing). The January figure of 4.9 percent, and future figures, should better reflect house price increases but will be less responsive to food prices. Recent measures taken by the government to cool the real estate market combined with recent surge in food prices contributed to the lower-than-expected January CPI figure.
If we look at a graph of historical changes in CPI we can see that the jump in inflation since last year is the sharpest for a decade. Furthermore, differences between urban and rural CPI numbers continue. The rural CPI is still higher than the urban CPI, although the gap has shrunk from 0.9 in 2008 to 0.4 currently.
 |
|
Source: China National Bureau of Statistics |
Since the beginning of 2011, food prices have continued to rise significantly. In January, food prices rose 10.3 percent, including a 15.1 percent rise in grain prices. Egg prices jumped 20.2 percent and fruit by an astonishing 34.8 percent. Experiencing such sharp rises in the prices of everyday items, it's no wonder the public is questioning the accuracy of the official figures.
Obviously a CPI increase of 4.9 percent is not the best advertisement for the effectiveness of the government's anti-inflation policies, nor does it bode well for the future. The current surge in inflation is not going away any time soon; it will probably increase further in first quarter of 2011. The following factors will contribute to pushing up inflation: The wide-spread drought in northern China's main agricultural regions will push up grain prices; housing prices will continue to increase, even if more moderately, until the government policies take effect at both the national and provincial levels. Above all, inflationary expectations are still very high in China.
Go to Forum >>0 Comments