China Inflation Rate Is Fastest in Three Years

Prices rise despite control measures

China's inflation rate for July hit 6.5%, its highest in three years, despite Beijing's best efforts to control it through required reserves for its banks and increased interest rates—five just since October.

China's National Bureau of Statistics said that food costs were responsible for much of the increase. Industrial output was up from last year, gaining 14%, but was down from 15.1% in June. Retail sales increased 17.2%. Producer prices rose by 7.5%, the most in nearly three years, with nonfood inflation up by 2.9%. However, made huge gains: food costs in general climbed 14.8%, and the price of pork jumped by 57%.

Auto sales slowed, dropping the overall rate of retail sales, which without cars included, hit approximately 18%.

A BBC report quoted Wei Yao of Societe Generale saying, "This is the type of data that should have prompted the People's Bank of China to hike interest rates, but given the current turmoil in financial markets, we expect them to delay it." It cited analysts as saying that Beijing will need to be cautious as it tries to control inflation in an economic climate poor for an export-based economy like its own. The global slowdown can hurt growth, so monetary policies will have to be carefully controlled lest they further slow China's economy.

Bloomberg reported that China was confident, however, that inflation may have peaked. Some suppliers have been allowed to increase prices. The report also said that UBS AG and Standard Chartered Bank do not predict any further rate increases in 2011.

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