Saturday, September 22, 2007

Pork: Not Just the Other White Meat

Pork leads inflation in China
China's politics of pork

Rising prices of pork, a staple in the Chinese diet, has contributed to inflation in China. Pork, which has jumped 77.6% in price in August from the same month a year ago, is now unaffordable to the average person in China. The increase in price is caused by cost increases for food and transportation, higher wages for workers, and narrow profit margins caused by a supply shortage that has been exacerbated by a disease which has killed over 45,000 pigs this year. The sharp rise in food prices, mainly fueled by rising pork prices, pushed up the annual growth rate in the Consumer Price Index (China’s key inflation indicator) to 6.5% in August, which is the highest it has been in eleven years. The National Bureau of Statistics stated the total increase of inflation reached 3.9% in the first eight months, which exceeded the government’s target of 3%.

A securities company believes China will probably raise the key interest rate again this month. An analyst with the company said the central bank will raise the benchmark rate to a level in line with inflation.

Increasing inflationary concerns led to the belief that there would be more interest-rate hikes. The People’s Bank of China has raised the one-year benchmark deposit interest rate four times during this year to offset increasing inflation. In a bid to "control excessive bank lending," the Bank announced its plan to raise the reserve requirement ratio by half a percentage point for commercial banks to 12.5%, effective September 25.

While the inflation numbers for pork and other food commodities are quite high by most standards, there are some who say this is only a blip in China’s economy. Some economists suggest that inflation will not be a problem by the end of the year.

Discussion Questions:
1. Will food prices, especially pork, continue to cause rising inflation in China?
2. China remains predominantly a farming country with most of its population dependent on stable price increases. Will the growth in food costs for the vast majority of Chinese lead to social unrest?

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