China’s November Inflation Rate Jumps To 5.1 Percent

China’s inflation rate jumped to 5.1 percent in November, its highest level in 28 months. November’s increase follows a 4.4 percent increase in October and a 3.6 percent increase in September.

In our previous post on inflation, we quoted Andy Rothman, China Macro Strategist for CLSA Asia-Pacific Markets, who said that rising food prices, particularly for fruits and vegetables, were the main cause for October’s surprise jump in the country’s inflation rate. Andy attributed the increases in food prices to shortages caused by recent bad weather in China, not excess demand due to an overheating economy.

Rising food prices continued to be the main culprit in November. According to Andy, food accounted for 74 percent of the November price rise which was driven by an 11.7 percent jump in food prices year on year. As Andy said last month, inflation in China this year is a weather phenomenon, with monetary policy playing a supporting role.

Residence expenses also accounted for a substantial part of November’s rise, contributing another 18 percent. Therefore, 92 percent of the rise in CPI came from these two categories alone. In November, non-food prices rose only 1.9 percent. On an overall basis, China’s CPI is up 3.2 percent through the first 11 months of the year.

What does all of this mean? “I think this means that an interest rate hike of 25 basis points is very likely by the end of the year,” Andy said in an interview over the weekend. However, Andy does not believe that higher rates foreshadow significantly tighter monetary policy in 2011.

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