Chinese inflation on the rise!

The latest data out on Friday showed that Chinese inflation had risen to an annual rate of 5.4% in March. This came with further evidence of the overall strength of the economy with first quarter GDP growth hitting close to 10% pa. It is clear from this that the World's second largest economy is still powering ahead. This is despite a period of aggressive monetary tightening led by the Bank of China as the Government has made it clear that they have set the control of inflation as their number one policy aim. The central bank's policy measures have included increases in interest rates and much tighter required reserves. There is an obvious concern within government circles about the possible impact of rising food prices on family budgets. The scope for resulting social and economic unrest is a clear worry. This might suggest that the Chinese government will again be forced to employ direct price controls on the food sector. While this might help a little the problem is that Chinese inflation is this time more broadly spread so the impact of controls on one part of the consumer price index will be limited.