High pork prices may affect the nation's cuisine
In any major economy, policymakers aim to calibrate a balance between growth and inflation. That balance has decisively shifted to taming a stubborn bout of inflation in China -- at least for the time being -- even at the expense of a modest slowdown in economic growth. Indeed, June's year-on-year CPI rose to a new high of 6.4 percent, about what most economists anticipated. Likely to preempt the release of inflation data, China's central bank last week raised interest rates (specifically, the one-year lending rate) another 25 basis points to 6.56 percent -- the fifth time since last winter that the rates have been hiked.
There are many contributors to inflation, but what stands out now is a resurgence of food inflation, which was 14.4 percent on an annual basis, up nearly 1 percent from May. More specifically, it's all about the pork, with prices up a whopping 57 percent, year on year. Tom Orlik at the Wall Street Journal has the story:
In 2010, analysis by a researcher at the Chinese Academy of Social Science suggested that pork made up a third of the food part of the CPI basket, or 10% of the CPI as a whole - making it the largest single component.
Food prices are volatile. In the last decade, data from the National Bureau of Statistics show food prices peaking at 23.3% year-on-year in February 2008. The peak for non-food prices was less than 3%.
Within food, pork prices are particularly volatile. In March 2008, the increase in pork prices rose to a peak of 74% year-on-year. If pork really is 10% of the CPI basket - an estimate that may be on the high side -- that alone accounts for 7.4 percentage points of the CPI's rise.
Is it simply an issue of supply and demand? After all, the Chinese are one of the world's biggest pork consumers. If you've ever lived in China (or visited any Chinese restaurant for that matter), pork dishes abound. In fact, when most Chinese say they are having meat, it usually means pork. It's the meat of the emperors. Mao Zedong's favorite dish was supposedly the braised pork specialty from his hometown Hunan -- and I can attest that it is truly delicious, even though it usually contains a layer of fat half an inch thick.