Chinese Inflation Hits 3-Year High, Limiting Policy Choices

Posted August 8th, 2011 at 11:25 pm (UTC-5)
Leave a comment

China is reporting inflation at a three-year high, creating new worries for the troubled global economy.

The government said Tuesday that prices in July were 6.5 percent higher than a year ago, driven by a 14.8 percent spike in politically sensitive food prices. That is the highest rate of inflation since a 7.1 percent rate reported in June of 2008.

Beijing has been moving aggressively to slow its economy, with restrictions on bank lending and a series of interest rate hikes. But analysts say if it goes too far, it could stifle the country's ability to help restore growth in other major economies.

Inflation historically has been a source of instability in China, and recent price pressures are seen as a factor in a wave of wave of riots, strikes and protests, especially in migrant-worker communities. Many poor Chinese spend as much as one-third of their incomes on food.

Analysts say China's current inflation is the result of the government's massive economic stimulus which helped it ward off the worst effects of the 2008 global slump. However recent indicators show a slowdown in manufacturing and other key sectors, leading some to believe China's inflation rate is leveling off.