Rising food prices drive Chinese inflation to fastest rise in 11 years

The rising cost of China's favourite meat, pork, is having an impact on the broader economic picture after data released yesterday showed food prices drove inflation in the world's fourth-largest economy to its fastest rise in 11 years.

Soaring inflation data came hard on the heels of figures showing China's trade surplus for August widened to €18 billion, the second-biggest number on record although slightly less than anticipated.

A 22.7 per cent rise in exports in August is set to heighten trade tensions with Europe and the United States, and feed into a row about product safety and further fuel claims from European and US politicians that the yuan is kept undervalued to help Chinese exporters.

The Chinese currency has gained 10 per cent versus the dollar since the end of the peg to the American currency in July 2005. China has said it will move at its own pace on making changes in foreign exchange.

China's economy expanded 11.9 per cent in the second quarter, the largest increase in more than 12 years, driven by overseas sales and investment.

China's consumer price index climbed 6.5 per cent in August from a year earlier, accelerating for the fourth straight month. This marks the biggest jump since December 1996 and it was driven by an 18.2 per cent increase in the cost of food, the National Bureau of Statistics said. In the basket of goods used to calculate the Chinese CPI, food makes up one third.

Meat prices rose nearly 50 per cent in August, after an outbreak of blue-ear disease and cutbacks in incentives for rearing pigs hit the supply of pork.

Vegetables too rose 23 per cent in August, compared to 19 per cent in July, while rice and other grains were up 6.4 per cent, compared to 6 per cent in July. The investment bank JP Morgan does not see price rises abating much over the year and has raised its full-year China inflation forecast to 4.1 per cent from 3.8 per cent.