China's January Inflation Rises 7.1 Percent

BEIJING -- China's inflation rose to its highest level in more than 11 years in January after devastating snowstorms worsened food shortages, according to data reported Tuesday, and analysts warned there might be sharper increases to come.

Consumer prices in January climbed 7.1 percent from the same month last year, driven by an 18.2 percent rise in food costs, the National Bureau of Statistics reported.

Economists warned that despite efforts to ease food shortages, prices could rise even faster in February due to higher wages, soaring costs for coal and other industrial materials and lingering storm effects.

February inflation "is likely to be much higher than 7 percent, and might even get close to double-digit levels," said Goldman Sachs economists Yu Song and Hong Liang in a report to clients. "Inflation is likely to have further legs to run."

High inflation could complicate Beijing's efforts to keep the fast-growing economy from overheating and add to pressure to let the exchange rate of its currency, the yuan, rise faster. China's economy grew 11.4 percent in 2007 and is expected to expand by at least 9 percent this year.

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Economists expect more interest rate increases this year to cool a boom in lending and investment. Authorities have raised rates repeatedly over the past two years to keep growth in check.

Letting the yuan rise faster against the dollar could help to cut China's swollen trade surplus by making exports more expensive in foreign currency terms. That could ease a flood of export revenues flowing through the economy that are adding to pressure for prices to rise.

Analysts have boosted inflation forecasts for China since the January storms, which killed at least 107 people, wrecked crops and destroyed crops across the south.

Deutsche Bank says inflation could rise as high as 8 percent for the first quarter. Lehman Brothers forecast price rises of up to 7.5 percent in February before the surge eases in March.

The storms, which began Jan. 10 and lasted into February, disrupted government efforts to ease shortages of pork, grain and other goods that are blamed for a food price spike that began in mid-2007.

Snows paralyzed railways and trucking, disrupting shipments of meat and vegetables. In some snowbound cities, the price of scarce tomatoes, oranges and other goods in street markets doubled during the storms, according to news reports. The price of coal for home heating rose by up to 75 percent.

Nationwide, vegetable prices rose by 17.5 percent in January, compared with 9.5 percent in December.

January's consumer price rise was the highest since September 1996, according to Lehman Brothers. December's rate was 6.5 percent, also driven mostly by food costs.

Other indicators suggest China faces growing pressures that might push up prices.

China's producer price index — which measures prices of goods as they leave the factory — rose by 6.1 percent in January, its highest rate in three years, due to high commodity prices and transportation disruptions blamed on the snow, the government reported Monday.

"Higher prices at the producer level could lead to rising consumer prices as producers might be pressured to increase prices of consumer products to offset rising costs," the official Xinhua News Agency said.

Beijing imposed price controls on food in January and has frozen the price of gasoline and other basics since September. But economists warn that such measures could worsen shortages if they deter farmers and other producers from investing to increase output, which would bring down prices.

Analysts worry that sustained inflation might prompt Chinese exporters to raise prices, possibly fueling inflation abroad.

Wages in the Pearl River Delta near Hong Kong, the heart of China's export-driven manufacturing industries, have risen 13 percent over the same period last year as employers try to attract workers amid fears of a possible labor shortage, according to a survey reported Tuesday by the official China Daily newspaper.

Chinese exporters already have been hurt by a 13 percent rise in the yuan against the dollar over the past three years, which has raised the price of their goods abroad. Some small producers have closed while others are trying to switch to more competitive products.

Among individual goods, pork prices rose 58.8 percent in January compared with the year-earlier period, while other meat was up 41.2 percent and cooking oil 37.1 percent, according to the statistics bureau.

Chinese leaders are especially worried about the political impact of rapidly rising food costs, which hit the country's poor majority hard.

Beijing is paying farmers to raise more pigs and has tried to increase grain supplies by imposing export curbs. So far, the inflation spike is confined to food, according to Tuesday's data. They showed prices for non-food items up only 1.5 percent in January over the same month last year.

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