China inflation reading hits ten year high

China’s August Consumer Price Index is out: a whopping 6.5 percent higher over comparable period last year, much higher than the 5.8 to 6 range economists were forecasting. The number, which measures inflation at the retail level, further breaks down to a 6.2 year over year price hike in major metro regions; but out in poverty stricken rural areas, goods and services are 7.2 percent more expensive than they were 12 months ago. In other words, poor people, who are always disproportionately hurt by rising inflation, are hit with the double whammy of even faster price escalation. While there is no golden standard for the CPI, most central bankers and economists are uncomfortable with a number above 2.5 percent. China has been trending between 3 to 4 percent for the past several months. The latest reading is a ten year high.

Not surprisingly, surging food prices is the main culprit behind the latest headline number, up a staggering 18.2 percent: Fresh vegetable up 22.5 percent, eggs up 23.6 percent, cooking oil up 34.6 percent and pork/poultry up 49 percent. Ouch! Prices in other sectors are faring much better, with most to the upside, but less than 5 percent: Rent up 3.9 percent, utility up 2.2 percent and healthcare up 2.3 percent.

In related news, yesterday, the head of People’s Bank of China, Zhou Xiaochuan reiterated that the role of a central bank is to fight inflation, perhaps having seen an earlier copy of today’s CPI report. Maybe we’ll get another rate hike sometime this week.

The Shanghai Composite Index surrendered earlier gains after the number was released. It closed the morning session down 14 points, at 5341.

UPDATE: The SCI lost another 230 points to close at 5114 in the afternoon session. Selling accelerated into the close. Decliners outpaced advancing issues by a 15 to 1 margin.

Jay Sheng is Shanghaiist's Business Editor. Email tips, news and gossip about business in Shanghai and China to biz at shanghaiist.com.