China inflation surges to 10-year high

Surging food prices drove the consumer price index (CPI) to 5.6 per cent in July - the highest in a decade - the National Bureau of Statistics (NBS) said on Monday.
But analysts remained confident that it will ease by the year-end.
Food prices, which make up about a third of the inflation basket, rose 15.4 per cent year on year last month.
Meat prices rocketed 45.2 per cent, the highest among all food products. Egg and edible oil prices increased by more than 30 per cent year on year.
However, non-food prices rose only 0.9 per cent.
Core inflation, which excludes food and energy prices, remained low at 0.7 per cent in the first half of this year, according to the NBS.
"The CPI growth in July is a bit surprising," said Zhu Baoliang, chief economist with the State Information Centre.
Many economists forecast that it would rise by around 5 per cent after it hit 4.4 per cent in June.
The government has taken a slew of measures, such as encouraging pig raising and checking price cartels, to increase food supply and curb prices.
"Price rises are set to slow but it will take some time for those measures to show their effect", Zhu told China Daily.
Chen Xingdong, chief economist of BNP Paribas Peregrine Securities, said prices will not stop rising until November.
If the price rises spill over into the industrial sector and lead to price hikes of industrial products, the situation will become much more serious, as it will indicate a more general inflationary trend, Chen warned.
For the whole year, the CPI is bound to break the central bank benchmark of 3 per cent, he said, adding: "Our study shows it may be about 3.7 per cent."
Many economists have forecast it will be close to 4 per cent.
One or two hikes in the interest rate are widely expected given rising consumer prices and other key economic indicators.
But Zhu said the rate increases, which are quite possible, will not ease price rises.
"Price rises of grain (used as animal feed) have remained stable and therefore it is not rising costs, but a growing supply-demand gap of food products that has pushed up the price index," Zhu said.
Interest rate hikes will not dampen demand for food, he added.
He said rising inflation has pushed the real interest rate - the benchmark one-year deposit rate is 3.33 per cent - into negative territory.
BEIJING EASES
FOREX CONTROLS
Another AP report from Beijing adds: China has scrapped rules that required local companies to convert a portion of their foreign earnings into Chinese currency, the government said Tuesday, in a move that could ease pressure on Beijing's foreign exchange system.
Companies now will be allowed to decide on their own how to use money earned abroad, the State Administration of Foreign Exchange said on its Web site.
Previous rules requiring companies to convert at least 20 percent of foreign earnings into Chinese yuan boosted demand for the currency, increasing pressure for it to rise against the U.S. dollar and other foreign currencies.