Singapore - Higher food costs from China to India are raising prices for a third of the world’s people, adding to the challenge of sustaining the global economic recovery as the growth outlook dims.
Consumer prices in China rose 3.1 percent last month as food costs advanced the most since May 2012, statistics bureau figures showed yesterday in Beijing, while India’s Commerce Ministry said inflation jumped to a seven-month high. Both gauges increased more than economists had estimated.
“In both countries, in recent months, food seems to be the primary driver of the increase in inflation,” said Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore. He said it was “not the ideal combination” when prices accelerated as growth slowed. “It complicates the life of the policymakers.”
The reports signal threats to growth in two of Asia’s three biggest economies as a partial shutdown of the US government risks leading to a default that would roil financial markets and cause recession. The International Monetary Fund cut its global growth outlook last week as capital outflows further weaken emerging markets.
While China’s central bank faces less pressure to raise borrowing costs, last month Reserve Bank of India governor Raghuram Rajan increased the benchmark repurchase rate to 7.5 percent to stem price gains.
India’s import costs have jumped as the rupee fell 14 percent over the past year against the dollar, compared with a 2.5 percent gain for China’s yuan in that time. China’s yuan strengthened to a 20-year high after prices jumped and the central bank set the currency’s reference rate at a record.
“For India, growth is more worrying,” said Edward Lee, the regional head of research at Standard Chartered in Singapore. The Reserve Bank of India was focused on bringing down prices, while moderating growth in China would help to curb demand inflation, he said.
The rupee weakened 0.3 percent to 61.2350 to the dollar as of 2.45pm in Mumbai yesterday, the most among Asia’s widely traded currencies, while the yuan gained 0.1 percent. Both the Standard & Poor’s BSE Sensex index and Shanghai composite index gained 0.4 percent.
China’s economy probably expanded 7.8 percent in the three months through September from a year earlier, according to a Bloomberg survey, up from the second quarter’s 7.5 percent pace. Exports dropped 0.3 percent in September from a year earlier, trailing all 46 estimates in a Bloomberg survey, while imports rose a more-than-forecast 7.4 percent.
The increase in China’s consumer price index (CPI) exceeded the 2.8 percent median estimate of economists in a Bloomberg survey, after a 2.6 percent gain in August. The government is targeting 3.5 percent consumer inflation for the year.
The pickup in September’s CPI was driven by eggs, vegetables, fruit and pork, as well as non-food items including fuel and tourism, according to a statistics bureau statement citing statistician Yu Qiumei. Non-food prices rose 1.6 percent in September, below a 2 percent pace for a 20th month.
India’s wholesale price index rose 6.46 percent in September from a year earlier, compared with a 6.1 percent gain in August, the Commerce Ministry said yesterday.
Food prices climbed 18.4 percent from a year earlier, with onions costing four times more than a year ago, the report showed. Fuel and power prices rose more than 10 percent.
India’s central bank is expected to raise benchmark rates another 50 basis points by the end of this year.
The economy will expand 5 percent to 5.5 percent in the fiscal year ending March, the Finance Ministry forecasts. HSBC Holdings predicts slower growth of 4 percent in that period, which would be the weakest in more than a decade.
The expansion in Asia’s third-largest economy was “somewhere near the low”, Rajan, a former International Monetary Fund chief economist, said in a speech in Washington last week. The pace should accelerate, helped by exports and farm output, he said.
“Given the Reserve Bank of India’s hawkish stance despite slowing growth, we expect the repurchase rate to remain high,” said Tirthankar Patnaik, a strategist at Religare Capital Markets in Mumbai, before yesterday’s report. “Rajan is aiming at getting inflation under control, which is needed for ensuring sustained long-term growth.” – Bloomberg