Inflation in China at an 11 year high.

Inflation in China has occurred at the quickest rate in over 11 years, due to serve snowstorms affecting food supplies.

In the provinces of Zhejiang and Guangxi 107 people were killed and damage of $15.5 billion was recorded

The price of food has increased by 18 percent as the weather destroyed vital crops and brought the transport system to a complete halt, which has caused unrest across the 300 million who live in poverty.

This is exacerbated by the fact that consumer prices have risen by 7.1 percent, which is difficult to absorb in the current climate.

Glenn Maguire, economist at Societe Generale argues that historically “periods of significant social instability in China have always been prefaced by sustained food inflation.”

The Chinese government face a difficult task in managing the continued pace of the worlds fastest economy, whilst stabilizing inflation and curbing social unrest

Liang Hong, a senior economist at Goldman Sachs Group said that “inflation is likely to have further legs to run even after the snowstorm effects subside because of fast growth in money supply” and that February’s rate “might even get close to double-digit levels.”

It is clear that the Chinese economy faces at least a short-term threat of inflation, and opinions are split as to whether interest rates will rise, especially after 6 increases in 2007 alone.

Currently the government options are limited though it is probable that they may use more currency gains and curbs on bank lending to restrain the price surges. It has imposed food and energy price controls in order to aid stability.

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