November 14, 2007
Chinese Prices Surge Again, Despite New Controls
By KEITH BRADSHER
GUANGZHOU, China, Nov. 13 — Consumer prices unexpectedly surged again last month in China despite price controls on a wide range of industries, and this month holds the prospect of even higher inflation.
For years, flat or falling prices for Chinese goods helped restrain inflation in the United States. But now rising costs for American imports from China are complicating the task of the Federal Reserve. The Fed has been cutting interest rates to help weak housing and credit markets in the United States, but has been wary that low rates might permit inflation to creep back into the economy.
Prices were 6.5 percent higher in October than a year earlier, accelerating from 6.2 percent in September, China’s statistical agency announced on Tuesday. The October inflation rate matched an increase of 6.5 percent in August, China’s highest inflation rate in nearly 11 years.
Rising prices are an especially dangerous problem for China, where public acceptance of one-party rule depends to a considerable extent on ever-rising prosperity. With food prices increasing the fastest — they were up 17.6 percent in October from a year earlier — many poor and working-class families are struggling to make ends meet.
Just this past Saturday in Chongqing, people began lining up before dawn when a Carrefour store offered a discount on large jugs of cooking oil, an essential for a lot of Chinese cooking. When the doors opened, a stampede ensued, killing 3 people and injuring 31. China’s commerce ministry responded on Monday by ordering a ban on limited-time sales promotions.
China’s leaders are clearly concerned. Prime Minister Wen Jiabao visited the needy in a district of Beijing on Monday and promised to stabilize prices, according to the official news agency Xinhua.
“Prices have been on the rise these days, and I’m aware that even a one-yuan increase in prices will affect people’s lives,” said Mr. Wen, referring to a sum of Chinese currency equal to about 13 cents.
Inflation accelerated in October even though the government issued a ban on Sept. 19 on all price increases for a long list of regulated industries, from airlines to electric utilities to energy companies. The main culprit in October was rising food prices, while nonfood prices climbed just 1.1 percent.
But prices will probably go considerably higher in November. The price controls prevented refiners from passing on high world crude oil prices in October, so many refiners cut back their output of gasoline and diesel, resulting in long lines at service stations. The government quickly gave in, announcing an increase of nearly 10 percent in the regulated price of gasoline and diesel that took effect on Nov. 1.
Truckers at a rest stop here in Guangzhou in southeastern China said that the price increase had not been enough to erase the shortages and that they were still being forced to wait hours to buy as little as five gallons of diesel.
Not only energy prices may be higher in November. Mr. Wen also urged employers on Monday to be more generous in giving raises to employees and to be especially careful to follow minimum wage laws. If his appeals are heeded, that could push up manufacturing wages and prices.
At a market early this afternoon in Shenzhen in southeastern China, clerks and customers complained about rising prices for everything from pork to Chinese cabbage — although egg prices had fallen slightly in the last month. But prices remain low in dollar terms, with some vegetables selling for as little as 12 cents a pound.
That low price in dollar terms is a result of a very low exchange rate for China’s currency, known as the yuan or the renminbi. China’s central bank has been buying foreign currency, mainly dollars, at a pace of $1 billion a day so as to slow the rise of its currency.
American companies buying from China face a double blow: not only are prices rising in terms of China’s currency but China has also quietly begun allowing the yuan to rise at a faster pace against the dollar. The annualized pace of appreciation of the yuan has climbed to 6 percent in the last week.
This will make it a little cheaper in yuan terms for Chinese companies to import raw materials, which tend to be priced in dollars. But it is still slower than many members of Congress have sought.
China’s competitiveness has not diminished yet, either. On Monday, China posted another record monthly trade surplus: $27 billion in October.
China now exports more to the European Union than to the United States, and exports to Europe have been growing strongly. The yuan has actually been losing value against the euro because China has set the appreciation rate of the yuan in terms of the dollar, which has been falling steeply.
Many manufacturers, as well as retailers of manufactured goods, have not yet raised prices, hoping to hold on to market share even as China’s production capacity keeps growing.
Pan Xishen, a business development manager at Tayohya, a home decoration chain with 370 franchised stores across China, said the company had resisted raising prices even though raw material costs had climbed 5 to 8 percent in the last year.
“It’s reducing the margin” of profits, he said on Tuesday at the Global Sources Franchising China trade show here. “We’re controlling the price to the consumer.”