Rising prices could cause cheap imports from China to become more expensive and this comes as China’s commerce ministry admits that a slowdown in the US could spark a drop in Chinese exports and mark a turning point for China’s economic growth.

Shoppers are rushed to a hospital in Southwestern China after fighting to get their hands on cheap cooking oil at a Carrefour supermarket in Chongqing over a week ago. The price of cooking oil in China is up over a third from last year. The Carrefour bottles had just gone on sale. The supermarket stampede was a second such incident in the country in recent weeks. A sign soaring prices or inflation are fast becoming a headache for Beijing.

High inflation is always a social, a political problem. The reason is because it normally hurt the poor people more because the food prices and so on. And so it’s damaging to social stability. China’s leaders clearly understand the potential problem. High inflation in the 1980s led in part to protest at Tian’anmen square. To help avoid social issues Premier Wen Jiabao this week visited a district of Beijing promising to stabilize inflation which is now growing at its fastest pace in over a decade. Wen said record-high oil prices and the rising cost of food were largely to blame. Food prices rose eighteen percent in October. Eggs are now fifteen percent more expensive. The price of vegetables is up a third. But the biggest price jump is for pork, by a whopping fifty-five percent in part due to concerns over the meat safety and supply. Some worry the spike in the food prices could hit other areas of the economy, forcing China to export higher prices to the rest of the world.

In the near term, inflationary problem might push up some of the cost of Chinese products overseas particularly if the currency continues to appreciate.
So far the government has banned price hikes in some industries like energy. It’s also stopped limited time sales promotions like the one at Carrefour. Most economists expect China to take more aggressive steps to control inflation, tightening interest rates and bank lending to make sure its people feel more at peace.

And some economists expect China Central Bank to raise interest rates very soon possibly as early as this weekend.

Notes:

Stampede: A mass impulsive action