Analysis: Meat prices add to China's inflation, policy risks

Sun Mar 10, 2013 5:09pm EDT
 
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By Lucy Hornby

BEIJING (Reuters) - Diners looking for some beef hotpot on a chilly evening in Beijing pay more per pound than their counterparts in Boston, a discrepancy that shows the challenges China faces in reviving growth as inflation pressures make an untimely return.

China's consumer price index rose 3.2 percent in February from a year earlier, a 10-month high, official data released on Saturday showed. The pick up in inflation from just 2 percent in January was driven by a 6 percent increase in food costs.

Prices that rise too much could jeopardize a government preference to allow economic growth to stabilize after it eased in 2012 to its weakest full-year pace in over a decade. Growth only started to pick up in the fourth quarter after a seven-quarter-long slide.

But if policymakers move too quickly to dampen inflation, they could equally jeopardize the very growth they are trying to nurture. It is a dilemma China's incoming leaders Xi Jinping and Li Keqiang may have hoped they would not have to face so early in the economic recovery.

"This year I think there are three priorities - to stabilize economic growth, which is not too big of a problem, and to stabilize the prices of goods, where already it looks like there could be some pressure," said Zhao Xijun, deputy director of the Finance and Securities Institute at Renmin University. Zhao says the third priority is to reduce the risk from hidden debt, such as off-book wealth management products.

There are already indications China's central bank is shifting its policy focus to inflation from growth. China needs to control inflation as a priority, the central bank said in its fourth-quarter policy report in February, shifting from a pledge in its previous report to support the economy above other needs.

POLICY DILEMMA

Pressures on China's meat prices highlight not only the challenge of bringing inflation under control but also in shifting the economy more towards consumer-led growth, Beijing's stated goal after decades of export-led expansion.   Continued...

 
A vendor selling vegetables waits for customers at a market in Beijing February 27, 2013. REUTERS/Stringer