Living in China: Cost of food drives up Consumer Price Index to 8.5%

China’s consumer price index(CPI) rose 8.5 percent in April, mainly driven by uncurbed food costs, the National Bureau of Statistics (NBS) said recently.

The figure, compared with 8.3 percent in March and a nearly 12-year-high of 8.7 percent in February, was broadly in line with most forecasts.

The NBS attributed the figure to a low base of comparison: the CPI rose just 3 percent in April 2007. Another factor was the rapid increase in world grain and commodity prices.

“Price rises are stable in general. Compared with March, the CPI in April was not substantially higher and prices of some items even fell,” said Zhang Liqun, a macro-economist with the Development Research Center of the State Council, China’s Cabinet. “That means fewer new driving factors for price rises.”

Following the release of consumer prices, China’s Central Bank announced a raising of the reserve requirement for another 0.5 percentage point to 16.5 percent on yuan deposits, effective on May 20.

The consumer price index, the main gauge of inflation, rose 8.1 percent in cities and 9.3 percent in rural areas last month.

“The CPI figure remains high because of a low base last year and the soaring prices of primary food on the international market to push up domestic food costs,” said a statement on the bureau’s Website.

Food prices, which make up around one third of the CPI basket, soared 22.1 percent in April.

The cost of pork rocketed 68.3 percent from a year earlier while edible oil jumped 46.6 percent and vegetables grew 13.6 percent.

The non-food sector saw a growth of 1.8 percent last month, compared to 1.6 percent in February. The March figure was not available.

“The growth is in line with our estimate ranging between 8.3 to 8.5 percent for April. It is still a stable growth and the inflationary pressure will gradually ease in the coming months,” said Li Maoyu, an analyst with Changjiang Securities.

Tao Dong, a Credit Suisse economist, shared that view but cautioned about price increases in the non-food sector.

“We believe the CPI is likely to moderate over the next few months, as food inflation can be curbed by a higher base and improved pork supplies. However, we are cautious about non-food inflation fueled by wage hikes in the medium term,” Tao said.

The producer price index, the factory-gate inflation gauge, jumped 8.1 percent year on year in April to reach a record high in more than three years, boosted by accelerating energy and raw material prices.