Bloomberg News

China’s Efforts to Slow Inflation Hurt by Thailand Floods

October 24, 2011

(Adds Deutsche Bank comments in third paragraph.)

Oct. 24 (Bloomberg) -- China’s efforts to slow inflation may be hurt by floods in Thailand expected to cut the production of rice, the staple food for half the world’s population, raising the price of the grain, Deutsche Bank said.

About 12.5 percent of rice fields in Thailand, the world’s biggest exporter of the grain, have been damaged by the flooding, the United Nations Food and Agriculture Organization said on Oct. 21. Exports of the grain from the country are seen falling 24 percent, the bank said, citing the U.S. Department of Agriculture. Rice futures in Chicago jumped to the highest level in more than a month today.

“High prices for agricultural commodities, specifically rice, could spoil efforts to bring down inflation in China, which may prompt the government to defer making changes to its current monetary policy,” Soozhana Choi, a Deutsche Bank analyst in Singapore, said in an e-mailed report today. “Higher prices for this staple food will be keenly unwelcome in Asia, which is struggling to contain inflation.”

China’s consumer prices rose 6.1 percent in September from a year earlier, after reaching a three-year high of 6.5 percent in July, according to official data. The nation must continue efforts to control food prices to ease inflation and maintain economic development and social stability, Premier Wen Jiabao said in an Oct. 22 statement on the government’s website.

Rice futures for January delivery gained 40.5 cents, or 2.4 percent, to $17.12 per 100 pounds by 1:37 p.m. London time on the Chicago Board of Trade. Earlier the contract rose to $17.215, the highest price since Sept. 21.

Food accounts for about 30 percent of Asia’s inflation, Deutsche Bank said. It constitutes 46 percent of India’s inflation and 33 percent in China, according to the report.

Rising food costs “may have far wider ramifications for not only overall commodities demand from base metals to energy, but also from a broader macro perspective,” the bank said.

--Editors: Sharon Lindores, Claudia Carpenter

To contact the reporter on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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