Prices are up 14.8 per cent in the food shops of Beijing this year, driven largely by a 57 per cent jump in the cost of pork. Photo: Getty Images
HOPES that China will stabilise the world economy with a new round of stimulus have been put on hold, with new figures showing tight credit policy has slowed the economy but failed to prevent inflation from accelerating.
Industrial production - a gauge of demand for Australian resources - slowed to 14.1 per cent in the year to July, the National Bureau of Statistics said last night.
But consumer price inflation ticked up to 6.5 per cent in July from a year earlier, above expectations and well beyond the government's comfort levels.
China has been tightening credit policy, including nudging up interest rates and hiking bank capital requirements to record levels, to keep prices under control. Policymakers now face a monetary policy predicament similar to 2008.
''The central bank would like to ease, but it can't,'' said Ben Simpfendorfer, an economist at Silk Road Associates.
Several Chinese economists expect policymakers to loosen credit conditions but not until prices ease. ''I think right now the short-term prospects for the Chinese economy are still OK,'' said Zhang Ming, an economist at the Chinese Economy of Social Sciences. ''There will be no hard landing, this year the Chinese economy can maintain a growth rate of 9 per cent.''
The bureau's figures show the unexpected rise in inflation was driven by food prices, up 14.8 per cent in the year, which in turn were driven by a 57 per cent hike in the price of pork.
Economists are confident food prices will fall, probably from next month. Some figures suggest pork prices have now peaked, thanks to rising supply, and the market turmoil of the past fortnight is likely to reverse surging imported commodities. Oil and commodities price rises had pushed overall producer prices up 7.5 per cent in the year to July.
The People's Bank of China said on August 1 that it was too early to loosen monetary policy because of the risk that inflation might accelerate. The bank came under attack during the 2008 financial crisis when it waited until September to begin cutting rates, after industrial output had begun to crash.
