Increase in food prices sparks fears of renewed inflationary pressures

The average prices of major food products in 50 Chinese cities rose in late August, data from the National Bureau of Statistics (NBS) showed Tuesday, fueling concerns of a rise in inflation.

A total of 17 kinds of food prices rose during the period between August 21 and 30. For instance, pork prices rose by 1.2-1.3 percent from the previous 10 days, and egg prices rose by 5.5 percent, the NBS said in a statement on its website.

Analysts expressed concern about the rises, given that food prices account for a weighting of about one-third in China's consumer price index (CPI) calculations.

"The country's economy is recovering slowly, but food prices are rising faster than expected, fueling inflationary pressure," Liu Chunge, an analyst at Shandong-based commodity consultancy Sublime China Information, told the Global Times.

Liu expects the CPI will rebound to above 2 percent in August, from a 30-month low of 1.8 percent in July, limiting the central bank's room for maneuver with regard to a potential cut in the interest rate or banks' reserve requirement ratio.

"Food prices will continue to rise for the rest of the year, driven up by the rise in international grain prices fuelled by the US drought," Liu said.

The CPI will rise to 2.3 percent in August, given the rise in fuel prices and international grain prices, as well as growing demand resulting from the approaching Mid-Autumn Festival in September, Lian Ping, chief economist at the Bank of Communications, said in a research note published last month.

He forecast that CPI growth will gradually pick up and stay at 2.8 percent for the whole of 2012, within the government's annual inflation target of 3 percent.

"China's dependence on imported soybeans is high, so the global price rise will result in higher prices for domestic cooking oil," Jiao Shanwei, a researcher at cngrain.com, a Zhengzhou-based grain portal, told the Global Times.

"The global price hike in soybean and corn prices will also increase the cost of feeding animals, which will then boost domestic pork prices," he explained.

"However, domestic prices of wheat and rice will be less affected, as China has reaped a bumper harvest of summer grain crops this year," he noted.