BEIJING (AFP) — China's inflation rate was 7.7 percent in May, easing from April's 8.5 percent, the government said Thursday, as analysts cautioned that some prices had been kept artificially in check.
Food prices have eased as farmers are producing more but, at the same time, price controls meant pent-up inflation had accumulated in the world's fastest-growing major economy, according to economists.
"While agriculture seems now to be responding... there are other price pressures out there that are being severely repressed," Standard Chartered economist Stephen Green said in a research note.
Inflation has become a global concern, with the US Federal Reserve now putting it top of its agenda in view of soaring energy and food prices.
The same concerns linger in China, with the Bank of China, one of the nation's main commercial lenders, arguing this week that the government should fight inflation by raising the interest rate at a "proper time".
Food prices, a main driver of inflation in China since last year, continued to be an important factor last month, although they were rising at a less steep rate, according to the statistics bureau.
Food costs were up 19.9 percent in May from a year earlier, while the price of pork, the staple meat for hundreds of millions of Chinese, had soared 48 percent, it said.
Pork rose a staggering 68.3 percent in April, suggesting there is now a more plentiful supply in response to government incentives.
At the same time, energy prices were being kept under control by the government, meaning local oil companies had not been permitted to pass rapidly rising global crude prices on to the consumers.
"We all know about fuel and electricity controls, but we hear reports of firms in the food and construction industries also being told not to raise prices," said Green.
"There is a lot more bottled-up inflation in this economy than meets the eye."
Ma Qing, an economist with Beijing-based research institute CEB Monitor, argued price controls would not work in the long term as they would dampen production and finally lead to rises because of short supply.
He also said controls on energy prices, especially oil costs, should be removed as they required huge government subsidies that could have been used to help the poor.
"Many people in the rural areas have no choice but to wait for death if they get a serious disease, because our medical system offers no help at all to them," he said.
"At the same time, we spend a lot of money subsidising people driving Mercedes-Benz or BMW... Morally, the subsidy for energy prices does not make sense."
In the first five months of the year, the consumer price index was up 8.1 percent from the same period in 2007, the National Bureau of Statistics said.
Robert Subbaraman, an economist with Lehman Brothers in Hong Kong, said the figures were likely to ease in the rest of the year, but warned inflation risks remained.
"There is still very rapid money growth that could feed into inflation. And there is also non-food price pressures building... from the fuel and natural resources prices... They will probably have to be raised," he said.
China has set an inflation target of 4.8 percent in 2008, an objective many observers believe will be almost impossible to achieve, given factors the government has little control over such as the price of imported goods.
The consumer price data was released a day after the government said producer prices had risen 8.2 percent in May, the fastest rate in nearly four years.
Copyright © 2009 AFP. All rights reserved. More »
