Don't feed the inflation

14 December 2009 By John Foley Follow @johnsfoley

Food prices are rising only modestly, but asset prices have rocketed. Reining them in with higher rates could upset China’s investment plans for next year and attract hot money. But nursing an asset bubble is like petting a wild animal fun and games until things get nasty.

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China reported a 0.6 percent increase in consumer prices in November compared to a year earlier, the first annual increase in nine months. Measured month on month, prices increased 0.5 percent, the highest since February 2008.

Food prices were the main factor in the increase, according to the official statistics bureau, rising 3.2 percent year on year, and 0.5 percent month on month. Price reforms in water, power and petrol also contributed to the rise.

Urban property prices, meanwhile, grew at their fastest rate in 16 months according to official data for November. The 5.7 percent increase for 70 large and mediumsized cities in November was the biggest increase since July 2008.

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