TEXT OF INTERVIEW
STEVE CHIOTAKIS: China says it will work to cool down prices on goods in the country. The inflation rate there surged to 5.1 percent in November, far higher than Beijing’s target rate. And after an annual economic meeting, the government said it will try to bring price hikes under control.
The BBC’s Shanghai correspondent Chris Hogg is with us now to talk about Chinese inflation — and why it risks the global recovery. Hi Chris.
CHRIS HOGG: Hi.
CHIOTAKIS: How fast are prices increasing in China?
HOGG: By more than 5 percent. And that is way above the government’s target of 3 percent. Inflation in November was at a 28-month high. More than 90 percent of the increase year on year is down to food prices and the costs of utilities at home. Economists here say primarily the weather is to blame for that. But Michael Pettis of Finance at Peking University says it’s a real problem for the government.
MICHAEL PETTIS: Inflation is very heavily concentrated in food, and the poor consume a much larger share of their total basket in the form of food rather than the rich. And given the tremendous income inequality in China, that’s become a very very big concern.
CHIOTAKIS: So Chris, what can the government do about it?
HOGG: It’s very difficult. Higher prices in factories for example are being driven by higher commodity prices — the prices of metal, cotton. But it’s not always clear why these are rising. The suspicion is people are hording both commodities and food stuffs. Apart from clamping down on that, the options are raising interest rates, allowing the yuan, the currency, to appreciate, and tougher rules for banks. But those measures won’t help food price inflation, whihc as I said is causing most of the problem in the moment.
CHIOTAKIS: And how does Chinese inflation, Chris, affect the rest of the world? Why should we even care about this?
HOGG: Well inflation concerns could prompt the Chinese government to allow the currency to appreciate faster. That would make Chinese goods on sale in the U.S. more expensive. But it would also make U.S. exports that compete with Chinese exports more competitive so there’s good news and bad news there. But above all, the world needs a strong Chinese economy, not one weakened by inflation because China’s a growing market for overseas goods.
CHIOTAKIS: Alright, the BBC’s Chris Hogg in Shanghai, Chris thanks.
HOGG: Thank you.