Inflation Looming

Anecdotal and some statistical evidence has been strong for a while that inflation was climbing and that food prices in particular were shooting upwards. But yesterday's announcement that inflation hit 6.5 per cent, the highest in 11 years was still something of a shocker. Even more surprising was the nearly 50 per cent (these figures are year on year) jump in pork and other meat prices, something that has obviously hit very hard indeed in a country where pork is the main meat source. Other food prices, also rather ominously as this means it can't be attributed to one-offs like the Blue Ear disease that killed a bunch of pigs earlier this year, were up nearly 19 per cent. The stock market dropped like as stone and at one point the Shanghai composite was down 4.5 pc as investors anticipated the central bank would make further moves to cool the economy.

Obviously, it is too early to start predicting imminent doom, or even economic contraction. But those figures are certainly sobering. The combination of inflation eating into people's incomes and forcing a rapid deceleration of the economy (accompanied of course by a big fall in the stock and property markets) is one definite scenario that gloomier economists have been warning about for some time. All that along with a looming recession in the U.S. makes for a pessimist's delight. We'll see. People have been predicting the crash of China's economy for years and been wrong but you do get the strong feeling that while some reverses could be managed, a group of negative factors occurring together (aka perfect storm) could be very nasty indeed.....