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The Honolulu Advertiser
Posted on: Wednesday, June 13, 2007

China's hot economy bites its consumers

By Joe McDonald
Associated Press

A pork vendor in Guangzhou is dealing with high prices — up 40 percent in the past year — high inflation and fewer customers.

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BEIJING — Chinese inflation rose to its highest level in more than two years in May, driven by soaring prices for pork and other food, government figures showed yesterday.

The government has been worried that China's sizzling economy, growing at an 11 percent pace this year, could accelerate politically dangerous inflation. The official inflation target is 3 percent.

Consumer prices rose by 3.4 percent in May, the National Bureau of Statistics said. That was the highest rate since prices rose 3.9 percent in February 2005.

Food prices jumped 8.3 percent from a year ago, up from April's 7.1 percent, the bureau reported.

A rise in food prices is especially sensitive because it would be felt most strongly in the poor countryside, where hundreds of millions of people have missed out on the country's two-decade-old boom.

Beijing has raised interest rates twice since mid-March to cool the economy, and analysts were expecting another hike this year.

The latest inflation figure "likely will induce further tightening," Citigroup economist Yiping Huang said in a report to clients. "We expect the central bank to hike the interest rates" and to shrink the credit pool by ordering banks to set aside more reserves.

Meat prices jumped 26.5 percent, while the cost of eggs was up 37.1 percent, the statistics bureau said on its Web site.

Communist leaders are especially concerned about soaring prices for pork, China's staple meat.

They have risen by more than 40 percent over the past year, partly by a pork shortage caused by the spread of blue-ear disease, an ailment that the government said Monday has killed at least 18,000 pigs.

Premier Wen Jiabao appeared on national television in May to assure the public the government is tackling the pork problem.