Tuesday, May 31, 2011

China, its Drought and Inflation

The China Daily reports on the impact of the drought in China.

Shoppers at a supermarket in Shanghai's Huangpu district complained that the price of rice produced in Hubei increased 20 percent in one month to 2.6 yuan a kg. Lotus root produced in Hunan also climbed 20 percent during the same period to 4.2 yuan a kg.

In Wuhan, capital of drought-hit Hubei, the average price of 20 monitored vegetables climbed 7.3 percent in one month. The price of cabbage almost doubled in May to 2.22 yuan a kg, according to the Ministry of Agriculture.

This may have a substantial impact on US inflation as well. Demand for Agricultural product up and  price on manufactured products up as well. 

Fifty years ago we were isolated from much of this and now it is as if it is all one country.

The article continues:

If food prices continue to soar during the summer, the increase may exceed 20 percent, which will push up inflation in the short term, Liu Ligang, an economist for the Greater China area with the ANZ Bank, said in his column for Financial Times.

On another note, Gao Wenqi, a researcher with the Shanghai Agricultural Technology Extension and Service Center, said the drought has provided better conditions for aphids to reproduce.

Aphids can produce a new generation in days with no rain, said Gao.

Things are getting a bit stiff.