Price to be paid?

No need to panic?

Inflation hit 6.4% last month, the highest it’s been in three years and well above the official 4% target. Rather than sound the alarm, reassurance seemed to be the main concern for much of China’ state-owned press, which pushed the government line: ‘trust us, we’ve got it under control’. Premier Wen Jiabao’s comments that fighting inflation was a “top priority” got significant coverage in state outlets like Xinhua. Economic experts assured the Beijing News that “the domestic economy has no immediate worries, but we need to plan for the future”.

Foreign commentators were less sanguine, with the Daily Telegraph concerned about the potential of a ‘hard landing’ for the Chinese economy if it continues to raise interest rates, and Bloomberg also worried about risks for other economies if Chinese demand drops.

Take one example: “We are absolutely at the point where if China sneezes, it’s not just pneumonia for Australia it’s a trip to the emergency ward,” Deloitte economist Chris Richardson warned the Sydney Morning Herald.

Clouds on the horizon?

No, the general consensus was that better times are ahead, with Beijing News citing National Development and Reform Commission (NDRC) analysts who predict inflation will peak in July and then “decline rapidly” in the fourth quarter.

The People’s Daily agreed, though no one in the media was prepared to predict the country would still be able to meet the 4% inflation target for the year. The China Securities Journal hazarded a full year estimate of 4.8%, put forward by a top central bank official.

Some in the Western press agreed that inflation would be tamed by rate rises, with Dow Jones predicting a full year figure of 4.5-5%. But EconMatters, a blog, dissented, pointing out that PPI (producer price inflation) was 7.1% last month, and would have a knock-on effect on consumer prices into the first half of next year. Reuters major concern was different: that overzealous cooling measures might be applied, after last quarter’s GDP growth figure came in at the high end, at 9.5%. It also anticipated at least one more rate rise this year.

Pork and politics…

Food inflation was another concern for China’s editors. The price of food was up 14% last month (on a year earlier) driven by a 23% rise in eggs and a 57% increase for pork. “The government holds the unavoidable responsibility of stabilising pork prices,” Wen assured reporters after the statistics were released. But some commentators worried that the problem with rising food prices was structural: “[Only when] upstream industries are stabilised and logistics costs reduced will the CPI be likely to come down,” argued the Beijing Times. “That is more important than raising interest rates.”

CNBC noted rising food prices “would be felt by China’s poor and [were] a solemn reminder for Beijing that quickening inflation could stir social unrest”. The Atlantic magazine said pork was costly because of the high price of corn and a shortage of pigs. “The things pigs eat now cost more than what people eat,” the AP quoted one Chinese pig farmer as saying.

The danger was that “surging prices for food and other basic necessities” would stir other grievances, like inequality and abuse of power, warned the Daily Telegraph.

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