INFLATION WORRIES INCREASE IN CHINA AND INDIA
ECONOMIC CONCERNS are also on the increase in China and India. Officially, China’s year-on-year inflation rate for June was given as 7,1%, against 8,7% in February. However, that’s widely questioned as the international driver of inflation is due to high energy and commodity prices. It’s accepted that the figure has been artificially reduced by about 3% to 4% due to state control of prices of major food products, such as rice and wheat. At the same time, the subsidies for fuel prices have already nearly doubled this year to US$40bn.
In India there are growing concerns following wholesale inflation having shot up to 12% in July. Here, too, the government subsidises food prices, while forcing state-controlled oil companies to sell fuel to consumers at below cost. That’s led to a large increase in the budget deficit. It’s estimated the deficit in the current fiscal to March 2009 could be more than 10% of India’s gross domestic product.
In both countries economic growth will be harmed – more so in India, owing to rising interest rates. The Chinese government hasn’t yet given any indication it’s seriously going to reduce growth.