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China's inflation rebounds in January, renewing pressure to control living costs

By: Joe McDonald, The Associated Press

Posted: 02/8/2012 8:26 PM | Comments: 0 (including replies) | Last Modified: 02/9/2012 12:26 AM

A security guard stands in front of a hamburger advertisement outside a fast food restaurant in Beijing, China, Thursday, Feb. 9, 2012. China's inflation rebounded in January as food prices soared, renewing pressure on the communist government to control surging living costs while it tries to boost slowing economic growth. (AP Photo/Alexander F. Yuan)

BEIJING, China - China's inflation rebounded in January as food prices soared, renewing pressure on Beijing to control living costs as it tries to boost slowing growth amid warnings of a looming global downturn.

Consumer prices in the world's second-largest economy rose by an unexpectedly strong 4.5 per cent over a year earlier, up from December's 4.1 per cent, data showed Thursday. Food prices jumped 10.5 per cent, accelerating from the previous month's 9.1 per cent rate.

"It makes us more concerned that the risk of inflation is not going away," said Nomura economist Zhiwei Zhang. Among Chinese planners "it will reinforce concerns about inflation that already were there."

The price spike could complicate the communist government's efforts to revive growth that slowed to a 2 1/2-year low of 8.9 per cent in the final quarter of 2011. Chinese leaders are gradually easing controls to boost growth and job creation but are moving cautiously for fear of igniting a new price spiral.

"In the short term, it also lowers the possibility of policy loosening," Zhang said.

The upturn in inflation broke a monthslong decline from July's 37-month high of 6.5 per cent. Analysts said food prices would face upward pressure due to the traditional Lunar New Year, when Chinese families stock up for banquets, but even with that factored in, they expected inflation to fall to about 4 per cent.

Inflation is politically dangerous for the ruling Communist Party because it erodes economic gains that underpin the party's monopoly on power. Last year's price spike stoked frustration among a public that is angry about pervasive corruption, a yawning gap between rich and poor, pollution and product safety scandals.

"I can feel that food and clothes are getting more and more expensive, like the milk I buy. It was almost 30 per cent higher than before," said Zheng An, 27, who works for a solar power company in Shanghai.

"I actually spend less money than before as I am now not brave enough to go out shopping due to the higher prices," he said.

The price jump comes as China and other developing countries face mounting warnings they could be hurt by a possible global slowdown.

The International Monetary Fund said this week that China's projected growth could be cut by nearly half this year to 4 per cent if Europe, its biggest trading partner, suffers a sharp downturn due to its debt problems.

The World Bank warned earlier that a possible global slump might hit developing economies harder than the 2008 crisis did.

The IMF said Beijing should be ready to launch a new economic stimulus in the event to offset the impact of a European downturn.

China rebounded quickly from the 2008 global crisis with a flood of stimulus spending and bank lending. But that money coursing through the economy also ignited a speculative boom that pushed up stock and housing prices.

January's food price rise was driven by a 25 per cent gain in the cost of the pork, China's staple meat. In December, pork prices rose 21.3 per cent.

Last month, the ruling party promised pro-growth policies for entrepreneurs after the plunge in global demand and lending curbs caused a wave of bankruptcies, raising the threat of job losses and unrest. But regulators have avoided interest rate cuts and say lending controls imposed to cool an overheated housing market will stay in place.

On Wednesday, the Cabinet promised to try to shift more of China's income to the poor by increasing the required minimum wage for the lowest-paid workers by at least 13 per cent each year through 2015.

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AP researcher Fu Ting in Shanghai contributed.

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Chinese National Bureau of Statistics (in Chinese): www.stats.gov.cn

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