Droughts cause rise in vegetable prices,trigger worries of higher CPI for May

Soaring vegetable prices amid China's worst droughts in half a century have triggered worries that inflation will climb to a new high in May.

Vegetable prices rose 18.84 percent this week (May 23 to 27) from the previous week, according to figures from the Baishazhou Market in Wuhan, capital of drought-hit Hubei Province in central China.

For areas outside the drought-affected regions, things are nearly the same.

Vegetable dealer Liu Baohua, who is head of the vegetable supply center of the Yuji Township Cooperative Association in Liaocheng, Shandong Province, found that spinach prices jumped to 3 yuan per kilogram from merely 0.4 to 0.6 yuan per kilogram a month earlier.

"It's not that farmers don't want to expand planting to make money, but they're freaked out by the price slumps last month", Liu said. "And even if they started planting, it's no longer the right season."

Higher vegetable prices last year encouraged farmers to expand vegetable planting, but prices slumped in April partly due to excess supply and higher transport costs.

Farmers adjust their crop schedule based on last year's prices, and they expanded planting this year as vegetables were expensive last year, which resulted in sharp slumps in April due to an oversupply, said Ma Yongliang, a researcher with the Research Center for Rural Economy under the Ministry of Agriculture on Friday.

Vegetable prices had slumped for seven weeks before mid-May, but then meat, eggs and vegetables all got increasingly expensive, according to Daiwa Securities.

The prices of farm produce in China continued to rise moderately in the week ending May 22, the National Bureau of Statistics (NBS) said on Tuesday.

Leaf vegetables such as cabbage, rape and romaine lettuce saw price hikes for two weeks ending May 22, said the NBS report. Cabbage prices gained 23 percent, rape went up 19.8 percent and romaine lettuce surged 16.7 percent.

The vegetable growth cycle is relatively shorter than grains, and their prices are prone to fluctuate, said Liu Yuanchun, deputy-head of the School of Economics in the Renmin University, on Friday.

Liu believes the enduring price hikes in poultry and grain products will wield more power over the Consumer Price Index (CPI), a main gauge of inflation, in the medium and long term.

Foods account for about 30 percent of the CPI, while vegetables contribute to about 20 percent of the foods' percentage.

HuaChuang Securities raised its forecast for CPI year-on-year growth in May from 5.4 percent to 5.5 percent, a 34-month high.

Lu Zhengwei, chief economist with the Industrial Bank, on Friday predicted a 5.5 percent year-on-year CPI growth for May.

Shen Jianguang from Mizuho Securities on Friday said CPI growth in May will hit 5.7 percent year-on-year.

The CPI rose 5.3 percent year-on-year in April, well above the government's annual inflation control ceiling of 4 percent.

An enduring drought has plagued the Yangtze River, China's longest, with the lowest levels of rainfall in the areas since 1961.

The drought has affected parts of Hubei, Hunan, Jiangxi, Anhui, Jiangsu and Zhejiang provinces, which are located near the middle and lower reaches of the river. These areas have seen 40 to 60 percent less rainfall than normal.

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