In China soaring food prices mean leaner diets

Li Ping and her husband, both retirees, pick over the offerings at a Beijing market to prepare traditional dumplings for the Dragon Boat festival. Rocketing food prices are limiting their options. "We can hardly afford meat now, it's too expensive," Li, 67, tells AFP, explaining that they now only enjoy that privilege two or three times a month. Apples are also too dear. Chinese authorities say reining in inflation is their top priority for the year, and have taken a raft of policy measures to cool prices. But those moves are not yet trickling down to help low-income households like Li's. Li's pension provides her with 1,100 yuan ($170) a month far from enough to deal with spiralling prices. "My kids have to subsidise us," she said. "We will have to depend on them in the future. I feel guilty." The couple bought some vegetables, sticky rice and wrapping leaves to make the dumplings 10 days before Monday's Dragon Boat festival a pre-emptive move to avoid expected price rises as the holiday draws nearer. China's consumer price index, a key gauge of inflation, rose 5.3 percent on year in April driven by increasing food prices a slight easing from the previous month but still well above Beijing's four percent target for 2011. May inflation data is due next week. The central bank has responded to growing price pressures by raising interest rates four times since October and repeatedly increasing the amount of money banks must keep in reserve effectively cutting their lending power. Authorities have also intervened directly in the market, warning a number of companies not to raise prices as they crack down on hoarding and pledge subsidies to the poor. However, analysts warn that current price hikes are much more serious than those seen in previous years, with the cost of everything from land to labour to raw materials all climbing. "Inflation pressures are far more stubborn this time because structural inflation is a much bigger problem than it was at any time in the last decade," said Ben Simpfendorfer, managing director of economic consultancy firm China Insider. Analysts are expecting the May inflation rate to exceed the 5.4 percent in March a 32-month high as domestic demand, bolstered by low interest rate levels and massive government spending, remains strong. In addition, a prolonged drought along China's Yangtze river which has left millions of people and livestock without water and devastated a major grain-producing belt may further complicate the battle against inflation. The average price of 17 out of the 29 staple foods monitored by the National Bureau of Statistics soared month-on-month in the May 11-20 period, with the price of one type of fish surging by 22.5 percent. "The ongoing drought in central-southern China and a rise in pork prices may delay the peak of food price inflation and keep it elevated for a couple of months longer," said Wang Tao, a Beijing-based economist with UBS. The drought has also reduced the output of hydroelectric power, China's second-biggest energy source after coal, contributing to a government decision to raise the cost of electricity for industrial use in 15 areas from June 1. Although authorities have so far kept residential power prices unchanged, concerns are growing that the hikes may eventually be passed on to consumers. Following Beijing's measures to cool the economy and contain price rises, growth in the world's second-largest economy has already shown signs of a moderation with expansion in manufacturing activities slowing in recent months. But the tightening is expected to continue as Chinese policymakers are ever wary of inflation's history of triggering social unrest, experts said. "Inflation is still a bigger risk, at least to a large part, because of the social impact," said Cui Li, a Hong Kong-based economist with Royal Bank of Scotland. At the Beijing market, 71-year-old Xie Zhong threw a batch of spinach, which was priced at 1.50 yuan, back onto a stall. "I will not buy it, it's ridiculous," he said, grunting that it cost one yuan just a week before. "No-one can contain the price rises. Only the government can do something."