Friday, May 09, 2008

China inflation update

Wall Street Journal reports that China's headline inflation may spread:

Within China, there are also signs that price rises, so far concentrated almost entirely in food, are now spreading to other goods and services. That could be worrisome to policy makers, who have repeatedly declared that their main goal is to prevent isolated food-price gains from turning into broader inflation. Among the risks: Inflation could weaken the consumer spending that has helped support economic growth.

The increase in China's consumer-price index excluding food accelerated to 1.8% in March, after hovering at 1% or less for almost all of 2006 and 2007, according to the National Bureau of Statistics. The acceleration likely reflects how higher wages and raw-material costs are feeding into price rises for a broader range of goods, phenomena that have global implications given China's importance as a supplier of many products.
Another contributor is higher rents, thanks to continued price rises in most urban-property markets. J.P. Morgan economists expect nonfood inflation to continue to speed up to an average 2.5% for all of 2008.

However, the report was short of providing evidence of price increases in CORE category. In any case, I am less enthusiastic about differentiating between "core" and "headline" inflation. China is a developing country and people spend more than 1/3 of their disposable income on food. So just admit it, there is an inflation problem.