The retail price of a brand name steamed buns in Shanghai increased again last month - nearly doubling in cost since this time last year.
Many complain. But there isn't much they can do to protest. True, they could give up the breakfast buns, which used to cost 0.7 yuan (9 US cents) each and now cost 1.3 yuan. But other breakfast foods are even dearer.
As pork, beef, mutton, egg, vegetable and oil prices are steadily rising, food costs are becoming a burden for families running on a tight budget.
In January, China's consumer price index jumped to 7.1 percent, producing a new high in more than 11 years since December 1996, when the record was set at seven percent.
Disruptive snowstorms are blamed for last month's CPI rise, which stood at 6.5 percent in December 2007, 6.9 percent in November and 6.5 percent in October.
Various government efforts made to curb inflation, including increasing the reserve ratio requirements for banks, raising interest rates and imposing temporary price interventions, couldn't battle the might of the worst snowstorms in 50 years.
Knock-on effects
And economists estimate the storms will have knock-on effects in coming months, warning that more CPI rises are possible.
"Even though the snowstorms seem to be over, and the lives of billions are gradually returning to normal, food supplies will likely remain tight for at least a few months. Much capital expenditure is also needed to rebuild infrastructure that was destroyed by the storms," said Wang Qing, a senior economist with Morgan Stanley.
"Moreover, faster money supply and loan growth in January also sow the seeds for more inflation ahead."
Morgan Stanley predicted the February and March CPI readings will continue to reflect the impact from the severe weather, and could well exceed January's 7.1 percent.
Ma Jun, an economist with Deutsche Bank, believed that the underlying inflationary pressure is even stronger than the January headline number is suggesting.
He predicted inflation will likely reach two more new highs to register 7.8 percent in February and eight percent in March.
"First, much of the inflationary impact of the snowstorms will be reflected in February CPI. Second, although raw agriculture prices went up substantially in January, it normally takes one to two months for this pressure to pass through to processed food items," said Ma.
While most economists agree that surging food costs remain the biggest driver of this round of price rises, analysts fear inflation may spread to non-food sectors.
In January, the costs of foodstuff advanced 18.2 percent from a year ago, compared with the non-food sector's 1.5-percent increase.
"CPI is being powered by food prices, but non-food is trending up as well, thanks to fuel and stronger pressures from manufacturing," said Stephen Green, a Standard Chartered Bank economist.
Rural areas were hit harder by higher living costs. In January, CPI rose 7.7 percent year on year in rural areas, compared with 6.8 percent in cities.
A senior official with the National Development and Reform Commission revealed last week that China wants to contain the growth of consumer prices this year within 4.8 percent, a goal difficult to achieve in the eyes of many.
To steer and cool the inflationary trend, economists suggest more macroeconomic controls.
"The record CPI could revive the tightening stance of policy makers," said Shen Minggao, a Citigroup economist.
"We expect the central bank to raise the policy rate once more in the first quarter, and probably with another adjustment of reserve requirements. Currency appreciation will likely be used as another effective instrument to contain inflation."
Wang Tao, an economist with the Bank of America, said there should be no more doubt that monetary conditions need to be tightened.
"While the government would be reluctant to raise interest rates, we look for a reserve requirement rise soon accompanied by intensified open market operations, and renewed tight control on credit in the remainder of this year," said Wang.
Because the United States Federal Reserve has cut interest rates to combat a slowdown in its economy and thus produced a US-China interest rate differential, many think that China may be looking to further raise rates.
Makeshift devices
In the view of Sun Lijian, a finance professor at Fudan University, all these measures are only makeshift devices to save the country from an acute case of inflation.
"The problem is like coping with a broken tap that keeps gushing water. People continue to change basins to hold the water. But the fundamental way is to turn off the tap and fix it," said Sun.
In his opinion, China should enhance the development of financial markets, lower the threshold of raising funds to boost growth of smaller companies, and make it possible for people's pay to increase.
Also, Sun suggests that China should further improve the public welfare system, give better and cheaper health care, education, employment and housing services, to encourage people to spend without having to save up for contingencies in the future.
(Shanghai Daily March 3, 2008)
