Rising labour costs may boost China inflation

Beijing, May 30 | Updated: May 31 2008, 07:01am hrs
Rising labour and production costs may intensify inflationary pressure in China as companies pass on the burden to consumers, the central bank said on Friday.

In a report on its website, the Peoples Bank of China (PBOC) urged local governments to redouble their efforts to curb inflation, which the leadership in Beijing has repeatedly identified as the countrys top economic problem this year.

On the back of the current surge in consumer prices, we must pay attention to the rising cost of labour and other production factors, which may further add to inflationary pressure, the PBOC said.

Consumer prices rose 8.5% in the year to April, just shy of Februarys 12-year high of 8.7%.

An undated survey by the central bank of 1,031 firms in 20 provinces showed two-thirds of them raised their factory-gate prices in 2007, while 70.6% of exporters raised prices with half of them pushing through increases of 10% or more.

The report, which summarised regional economic and financial developments in 2007, said there were labour shortages in the eastern, north-eastern and central parts of China, particularly in Fujian, Zhejiang and Guangdong provinces.

The wage bil last year rose at 73% of the firms surveyed, mainly due to higher social security contributions and increases in minimum wages set by local governments.

Still, average pre-tax corporate profits grew 24.5% in the past three years, outpacing the 17.1% increase average labour costs, the central bank said.