Page last updated at 08:44 GMT, Wednesday, 16 April 2008 09:44 UK

Steep rise in Chinese food prices

Woman shops in Beijing
Higher food prices are a worry for the Chinese authorities

Food prices have risen 21% in China so far this year, fuelling concerns about inflation in the economy and the affordability of basic staple goods.

The surge was confirmed by the National Bureau of Statistics, which also revealed that economic growth eased slightly in the first quarter.

Growth dipped to 10.6% from 11.2% in the last three months of 2007, the weakest performance in over a year.

Rising food prices could cause major global instability, it has been warned.

'Sound growth'

At its annual meeting over the weekend, the World Bank warned that rapid action had to be taken to tackle food shortages, which are causing unrest and violence in some developing countries.

Headline inflation in China actually slowed slightly in March to 8.3% from 8.7% in February but higher food costs accounted for the bulk of the figure.

Global (grain) supply is tight and domestic consumers may resort to panic purchasing in expectation of high prices
Zhang Shiyuan, Southwest Securities

The sharp rise in food prices, driven principally by the increased cost of grain, is a worrying development for the Chinese authorities which have been trying to contain inflation to stop the economy from overheating.

"I am afraid that grain prices will edge up in the months to come as global supply is tight and domestic consumers may resort to panic purchasing in expectation of high prices," said Zhang Shiyuan, an analyst with investment firm Southwest Securities.

Key interest rates were raised six times last year while banks have been told to increase the amount of money they hold in reserve and curb lending to limit credit growth.

Yiping Huang, chief Asia economist for Citigroup, said inflation remained a "real challenge".

The growing strain of rising food prices in China

Although the rate of GDP growth fell in the first quarter, the performance was better than most analysts had expected.

The slowdown was caused by a combination of harsh winter weather, less buoyant export conditions and the effect of monetary tightening.

With the global economy slowing markedly, China will struggle to match recent annual growth rates. Last year the economy grew by 11.7%.

In a statement, the National Bureau said the economy would see "sound growth" this year, driven by tight monetary control and balanced development.

"Policies were put in place in an effective way, leading to steady and fast growth," it said.

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