The power of pork

Soaring pork prices are fueling Chinese inflation.

The cost is up 40% in the last year (while meat prices generally are up 26.5%), largely because of a blue-ear disease epidemic which has seen at least 18,000 pigs slaughtered. With pork a staple of the Chinese diet, and farmers no longer rearing the animals for fear of the illness, the shortages are having a knock-on effect.

Food prices in general are up about 8.3%, although consumer prices as a whole rose 3.4% in May. The government’s target is 3%, and so another interest rate hike is on the cards as the authorities try to cool an 11% annual economic growth rate.

And Reuters/Financial Times make an interesting observation:

Savers earn 3.06 percent on 12-month certificates of deposit, meaning that after a 20 percent tax is deducted, the value of their money is failing to keep pace with inflation.

This has encouraged millions of Chinese to cash in their deposits and punt on the stock market, which jangled government nerves by falling sharply last month after almost quadrupling in 2 years.

Communist in name only.

Inflation is a tricky bugger to quantify as different countries use different products in their calculations. For instance, Ireland is the only country that I know of in Europe which includes mortgage payments in its figures. This means the Irish inflation rate is above 5%, whereas if mortgage payments were stripped out it would be closer to 2.7% (the eurozone target is just under 2%).

Nonetheless, headline figures spook investors and jittery investors can instigate sell-offs that wipe billions off a stock market in just a few hours. It seems that, as with so much in life, confidence is everything.

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