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Elaine Chan

Retired state worker Guan Jingwen has a problem: although her small government pension payout has increased, the extra she receives has not kept up with   the rising cost of her most basic expense  - food.
The 69-year-old says the price  rises have hurt so much that she has now given up  buying fresh milk.
'Prices have risen too much since last October, from the initial 1 yuan increase a pack to 1.40 yuan or 1.50 yuan now,' Ms Guan  said, while  buying groceries at the Bonjour supermarket in Beijing.
'Now I have cut out buying fresh milk, but my children sometimes buy me some. The overall quality is deteriorating too - some brands are getting more and more diluted.'
Beijing's fight to beat inflationary pressure could be a  drawn-out battle  amid the economic consequences  of the nation's  worst  blizzards in 50 years, and    the threat of a global recession.
Last week, the government revealed that March's consumer price index rose 8.3 per cent, well above  the 4.8 per cent annual rate that it has set for  all of  this year.
For the first quarter,  the index rose to 8 per cent.  Driving the  increase was a 21.4 per cent rise in food prices last month. Pork and edible oil posted the biggest increases for the month - 66 per cent and 50.7 per cent, respectively.
Overall, China, the world's fourth-largest economy, expanded at a greater than expected 10.6 per cent in the first  quarter of this year, compared with 11.2 per cent  a year earlier. On the same day the government disclosed the numbers, the central bank raised its reserve requirement ratio for commercial banks by 50 basis points to 16 per cent.
Taming inflation  is the central government's top priority as unchecked  growth in prices hurts the basic needs and livelihoods of  ordinary workers and a population already torn by a widening income gap.
According to the National Bureau of Statistics, cities registered an 8 per cent  inflation growth last month while the rate in the countryside  was  9 per cent.
But despite a slight easing in the rise of consumer prices from February's 8.7 per cent, producer price pressures  were building up. Annual factory-gate inflation leapt to 8 per cent year on year from 6 per cent in February on the back of rising global commodity prices.
'The further uptick in intermediate goods inflation on the PPI [producer price index] reflects continuous upward cost pressure on a range of commodities, energy resources and raw materials. In this regard, faster yuan appreciation would be an effective tool for containing domestic and import prices of many essential commodities,' said JP Morgan chief economist Frank Gong.
Premier Wen Jiabao last week reminded officials during a State Council meeting of the economic uncertainties engulfing the mainland, urging them to brace  for  a global slowdown and volatile financial markets, surging global commodity prices,  and a domestic battle to achieve balanced and sustainable economic development.
Mr Wen said  the biggest domestic economic  issues were rising prices, obstacles hindering agricultural production and rural income as growth in fixed-asset investment threatened to rebound, and the  obstacles to conserving energy.
Mainland consumer prices have risen the fastest in a decade  without signs of a letup.  Economists like Deutsche Bank's Greater China chief economist Jun Ma have warned  that   inflation may  rise to about  8.9 per cent this month, with the outlook for both May and June uncertain. He attributed the expected rise to an increase in the agricultural price index since the end of last month  and approved price increases for processed food items.
'Pressures from raw materials costs and wage inflation are intensifying,' he said in a research report. 'Wage inflation has probably accelerated as well, due to the implementation of the Labour Law in January this year and inflation-led demand for wage hikes. Domestic grain prices are also under upward pressure because of rising fertilizer costs, declining farmer interest in grain production, and a surge in overseas grain prices.'
China International Capital Corp chief economist Ha Jiming forecast that inflation would begin to ease  to below 6 per cent in the second half of the year as  high prices  in the blizzards' aftermath would have played out in the first half. He also said the United States Federal Reserve's precautionary rate cuts would taper off, paving the way for a stronger  US dollar and an easing in global prices. As a result, China would import less inflationary pressure, Mr Ha said.
Beijing's counter-inflationary measures have come on two fronts.   In January, the central government  capped prices on  a range of products including grain, meat, milk, edible oil, eggs and liquefied petroleum gas. Under the price controls, 12 major food and beverage groups including Tingyi (Cayman Islands) Holdings, China Foods, Inner Mongolia Yili Industrial Group, China Mengniu Dairy and Uni-President China  needed approval to raise selling prices.
Up  to last month, the National Development and Reform Commission  had only approved price  increases requested by Shanghai's Bright Dairy and Food, the country's third-largest dairy producer, and its smaller peer Sanlu Group, as well as Singapore-listed palm oil refiner Wilmar International.
The controls  had taken a toll on the share prices of some companies until the recent price increase approvals began to lift investor sentiment.
The share price of Mengniu,  the mainland's biggest liquid milk producer,  had  fallen almost 25 per cent since Beijing's announcement of the price caps, until its smaller rivals Bright Dairy and Sanlu Group  obtained approval last month to increase their selling prices.
Mengniu's  margin  fell to 22.5 per cent last year from 22.9 per cent in 2006. Since October,  the price of raw milk has risen 40 per cent, reducing the firm's  margin to 20.82 per cent in the second half  from 24.46 per cent in the first half.
Mengniu raised  its product prices  by  15 per cent last December  and has yet to  apply for further  increases. Chief financial officer Yao Tongshan was ambiguous about whether the company would seek to raise  its prices again.
China Foods, the  edible oils, wine and beverage unit of  China National Cereals, Oils & Foodstuffs Import & Export Corp (Cofco), has also suffered from the surging raw material prices.
The price of soya bean bulk oil - its raw material - has risen almost 50 per cent year on year, but  the firm cannot pass  on the full cost  to end-users.
Citing the social responsibility of a state-owned company,  management has  alluded to the difficulty in raising its selling prices. The company's share price has slumped 22.18 per cent since the NDRC's January caps.
On the monetary  front, the People's Bank of China  not only raised banks' lending rates six times since last year;  it also increased reserve requirement ratios, with the latest  increase announced last week to take effect on Friday.
But analysts expect the reserve ratio to be raised  by another percentage point or two this year.
As economists at home and elsewhere expect tighter monetary policy to persist  on the mainland,  mainland consumers say they will also tighten their belts as much as possible, although basic necessities are nevertheless essentials.
At Bonjour and Wal-Mart in Beijing, sales attendants say sales of dairy products  are  little changed.
'Over the past two weeks, the prices of major dairy products increased  20 fen a pack on the whole, and it seems they will continue to rise,' said a saleswoman at Bonjour.
'Prices for yogurt climbed quite quickly, however. We put new price tags on every three or five days.'



Inflation bites where it hurts most - food