Sixty-seven-year-old Beijing housewife Wang Litan faced an agonizing choice recently: Wang requires painkillers to manage chronic back pain caused by diabetes, but the steep rise in China's food prices has forced her to choose between back pain and hunger pangs. "I need to keep taking diabetes medicines to stay alive, but I have traded in painkillers for meat," she says. "This is the time that I will have to live with some pain."
China's National Bureau of Statistics announced this week that the Consumer Price Index (CPI) in the first quarter of this year was 8% higher than in the same period last year. Food prices, the biggest factor in spiraling inflation, rose 21%. "China's economy has entered a period of serious inflation and it is more worrisome that the rising CPI doesn't look like slowing down anytime soon," comments He Fan, an economist at the Chinese Academy of Social Sciences. "Things are bound to get worse before getting better."
And Wang feels the pain, in her back and in her purse. The retired Beijing Bus Factory worker cooks for her husband, son, daughter-in-law and granddaughter, explains, "I used to spend about one thousand yuan ($143) a month on food; now it has doubled."
Although the Central government has reacted relatively quickly to this round of inflation, "the effect of monetary policy changes will only start to show from the second half of this year," predicts He Fan. The central government has increased interest rates six times since January 2007, and although the CPI's rate of increase has slowed slightly since February, the overall inflation rate remains very high, economists say. And the fact that the main driver comes from food prices exacerbates the burden on ordinary consumers. Within a year, pork prices have risen by more than 60%, with beef and lamb not far behind. The increases are hardly confined to meat. In Beijing's largest wholesale food market, Xinfadi Primary Product Market, even the price of cabbage has risen 50% in the past two months alone.
Even those who might be expected to benefit from rising food prices are complaining. Yang Zhijun, a Muslim street vendor of roasted beef and lamb stomachs, said his costs have risen by over 50% since last year. "I used to be able to make 300 yuan ($43) a day; now I only make 50 yuan ($7)." His mood is sullen. "I don't want to talk about the price," he grumbled looking at the ground and smoking a cigarette. "If things don't change soon, we'll be on the streets protesting the price rises."
It wouldn't be the first time inflation brought people onto the streets of China. When the Tiananmen protests broke out in 1989, China's CPI had seen a dramatic increase from single digits to 20.7% in 1988. Inflation, along with rampant corruption, was one of the main drivers of the early protests and largely accounted for the swift expansion of the uprising from students initially to ordinary workers and shopkeepers.
That fact isn't lost on the Communist Party leadership. Premier Wen Jiabao has reiterated repeatedly that the primary task for China this year is to curb the potential inflation and maintain food prices at a reasonable level. In an effort to block imported inflation and reduce the country's swollen trade surplus, the Chinese yuan has been allowed to rise 4.18% against the dollar in the first quarter of this year, compared to a rise of 7% during the whole of last year.
In an effort to cool the red-hot engine of the economy, meanwhile, the Central Bank of China announced on Wednesday that, for the third time this year, it was raising commercial banks' reserve requirement ratio by 50 basis points to 16% in order to curb lending that was contributing to the overheating economy. In the last 12 months, the Central Bank has raised the bank reserve requirement ratio from 10% to the current 16%. So far those measures are having little visible impact: the most recent government statistics released on April 17 showed GDP growing at a blistering 10.6% in the last quarter.
Other measures are aimed at the most sensitive portion of the CPI, food prices. The National Reform and Development Commission announced it had rejected a request for a price hike from four major cooking oil companies. The government has promised to subsidize the companies to offset any loss they suffer as a result of freezing prices. The authorities have also enforced a series of policies to encourage pig farmers to expand their farms.
"The food price will be able to contain at a reasonable level once the new policies start to show effect," says He Fan, who predicts the annual CPI increase will stand at about 6% at the end of this year. But until inflation begins to slow, China's leaders could be in for a rough ride there may be a limit, after all, to how much pain people like Wang Litian are willing to absorb.