China’s National Statistics Bureau released data this week showing that inflation grew by 8.5% in April which is its highest level in nearly 10 years.

As a reminder, February’s inflation rate was 8.7%, the highest in 12 years, and March was 8.3%.

The government is doing its best to cool this trend by:

1. Requiring banks to set aside more deposits as reserves (for the fourth time this year). This ‘freezes’ US$30 billion in the banking systems; reducing capital available for loans.
2. Raising the central bank one-year lending rate from its current nine year high of 7.47% (not confirmed).
3. Slowing growth of the ever-strengthening yuan.
4. Reducing the trade surplus, which fell by 1% in April and in turn decreases the amount of money spent on China made goods (reduced demand given the products are more expensive).

Is this enough? The following April-08 statistics strongly suggest that it is not.

- 22.1% overall increase in food prices
- 68% increase in cost of pork
- 47% increase in cost of cooking oil
- 14% increase in cost of vegetables
- 48% increase in cost of meat
- 63% increase in cost of wheat and the price of rice has doubled
- China’s trade surplus with Europe grew by 35% and the U.S. by 4%
- Foreign direct investment in China grew 59% in the first 4 months of this year to US$35 billion

For exporters, they can expect increased costs for raw materials, energy and the all important human resource throughout this year.

For importers, its time to roll up those sleeves and put your strategic sourcing plans to work (if you have’nt already).

For China, they are hoping that this cools quickly as the hardest hit are always the poorest which could lead to further unrest and mass protests - just in time for the Olympics.