The National Bureau of Statistics said today that rising food prices have created consumer price inflation in China for the first time since January.
A 3.2% rise year-on-year in food costs created a 0.6% rise in CPI. Food makes up one-third of the basket of goods used to judge consumer prices. The NBS also pointed out that last year’s inflation figure, in the midst of the economic crisis, made for a very low base of comparison.
Once again, I have to say I’m skeptical about the figures. Food prices are certainly rising and judging from anecdotal reports they are rising far faster than 3.2%.
And there have almost certainly been rises in the cost of petrol, coal, electricity, gas and plenty of other non-food items. I find it near impossible to believe that CPI has really been negative for all these months.
Not only is there plenty of money sloshing around in the system, but wages are rising and the supply of money is going through the roof. M1 money supply was up 35% in November and M2, the broadest measure, was up 30%.
I know there’s no immediate correlation between money supply and rising prices, but inflation does track relatively closely to money supply over time. Certainly it is difficult to imagine that Chinese inflation will remain subdued if the government keeps printing banknotes at a near record rate.
The general consensus appears to be that CPI will rise to around 2% by the first quarter of next year. I would argue that the figure will be higher and that China’s central bank will have to act sooner to head it off.