Financial data released in August has created worry among the Chinese public about inflationary pressures confronting the economy.

The August Consumer Price Index (CPI) grew 6.5 percent from a year earlier, largely driven by surging food prices for items such as pork, vegetables and edible oil.

Meanwhile, the Product Price Index (PPI), a measurement of inflation at the wholesale level, increased 2.6 percent in August, 0.2 percentage point higher than July. That spike marked a reversal from a steady slowdown in PPI in the past few months, which indicated that inflationary pressure is spreading from the consumer sector to other sectors of the economy.

It is commonly known that when the CPI growth rate exceeds 3 percent, the economy is entering an inflation period. When the CPI grows over 5 percent, it triggers serious worries about inflation.

The monthly CPI growth rate has been over 3 percent since March this year with a 5.6-percent increase in July and 6.5 percent high in August.

Though the Chinese media spared no efforts in warning against serious inflation, economists have stayed at ease.

Wang Qing, Chief Economist with Morgan Stanley Asia Pacific, stated in his September 12 report that it is still early to judge whether China has entered an inflation era, even though the August CPI growth was the highest in 11 years. He said this round of price hike was more of a seasonal phenomenon instead of the beginning of a long-term price increase.

His view is echoed by Jonathan Anderson, Chief Economist for Asia of UBS AG, a Swiss financial firm. Anderson believes the Chinese CPI growth rate will slow to 2-2.5 percent at the end of this year or early next year. By that time, he said, pork, egg and poultry prices will be back to normal, adding that the core CPI (excluding food and housing sectors) growth rate did not fluctuate much in recent months. National Bureau of Statistics (NBS) figures show that the core CPI only grew 0.9 percent in August.

The Chinese Government is well aware of this fact, and the Central Bank Governor Zhou Xiaochuan contends that the primary task is to cope with the "inflation expectations," which will likely pose more pressure for further price hikes.

While the government is calling for pork prices to be reined in, farmers have other ideas.

"What's wrong with the price rise?" complained Sun Honggen, a farmer in Jiangsu Province who raises two pigs. "It is very costly and time-consuming to raise a pig. Everything is becoming more expensive-feed, fertilizer, pesticide, my kid's tuition fee, electricity and so on.

"Why can't the pork price rise? Why is the government so upset about it?" Sun retorted. The average per-capita income of urban residents is several times higher than that of farmers. "Why is it such a big deal that they spend a little bit more on pork?"

Farmers' dilemma

Soaring pork prices are believed to bring pig farmers a large fortune, but Chinese farmers aren't that optimistic.

Bi Jingquan, Deputy Director of the National Reform and Development Commission, stated in a press conference in early September that farmers benefited most from this round of pork price hikes.

His words were backed by an income report on farmers released by the NBS. In August, the NBS published farmers' income statistics of the first half of this year. These showed that income for farmers indeed increased along with the rising agricultural product prices. However, the statistics also showed their per-capita monthly income from husbandry only rose 20 yuan-the price of half kg of good-quality pork.

As a matter of fact, farmers are not that excited about the pork price surge.

"According to my 10 years of experience, the substantial price increase is always followed by a sharp drop," said Feng Shuhua, a pig farmer in Shandong Province.