ST : China's inflation, home prices up

May 12, 2010

China's inflation, home prices up

Official data comes amid warning about rich-poor gap

BEIJING: China's inflation accelerated last month and housing prices rose at a record pace despite recent government measures to prevent a dangerous property bubble, official data shows.

The fresh figures yesterday came as a government-linked research institute warned that the gap between the rich and poor in China is escalating and the Gini index of the country now exceeds the 'red line'.

The data spooked investors and China's main stock index tumbled 1.9 per cent to close at its lowest level in 11 months.

April consumer prices rose 2.8 per cent from a year earlier, below the full-year target of 3 per cent but up 0.4 percentage point from March, the National Bureau of Statistics said.

Food prices jumped 5.9 per cent, up from the 5.2 per cent rate in March.

'Growth in the consumer price index is still mild compared with our economic recovery and inflation in other countries,' said a bureau spokesman, Mr Sheng Laiyun. 'But we are facing big inflation pressures in the short term.'

Foreign companies and investors are watching Chinese inflation because moves to cool prices might slow stimulus-fuelled economic growth that surged to 11.9 per cent in the first quarter. That could hurt the global recovery if it weakens demand for foreign iron ore and other imports.

Economists say inflation is still relatively low and Beijing was unlikely to react with an immediate rate hike at a time when the global outlook still is uncertain amid the European debt crisis.

'Overall, we don't see this as threatening yet for the economy,' said Standard Chartered economist Jinny Yan.

The government worries about a surge in housing and other asset prices and is trying to use lending curbs to discourage speculation.

Despite the controls, property prices in 70 cities rose last month by an average 12.8 per cent from a year earlier, higher than the annual 11.7 per cent increase in March and the fastest pace since the statistics bureau began to put out monthly figures in July 2005.

But analysts said property inflation will likely ease over the summer as steps introduced last month, including raising down payments and mortgage rates for second homes, would have a bigger impact in the coming months.

'From what we've seen, the number of transactions is already plummeting,' said Mr K.K. Lai, southern China chief executive of property services firm Centaline. 'At the rate we're going, we're likely to see the rise in urban property prices easing to the single digits in the next few months on a year-on-year basis.'

Separately, an analyst has warned about the country's growing income gap, China's Global Times reported.

China's Gini Index has reached 0.47, according to World Bank figures, said Mr Chang Xiuze from the Academy of Macroeconomic Research of the National Development and Reform Commission.

'China's Gini index has seen consecutive rises after it exceeded the international warning line of 0.4 10 years ago, and the country's poverty gap has broken the limit line,' he said.

The wealth gap between the top and bottom 10 per cent of the population has risen to 23 times in 2007 from 7.3 times in 1988, said Mr Li Shi, director of the Income Distribution and Poverty Research Centre at Beijing Normal University.

The urban-rural income disparity is also a major concern.

China saw its widest rural-urban income gap last year since its reform and opening-up policy was launched in 1978. The urban-to-rural income ratio was 3.33:1, according to official figures released in March. The urban per capita net income stood at 17,175 yuan (S$3,480) last year, against 5,153 yuan in the countryside.

The ratio is higher than the global average of at most two times, Global Times reported, quoting Mr Su Hainan, director of the Institute for Labour and Wages Studies at the Ministry of Human Resources and Social Security.

ASSOCIATED PRESS, REUTERS