In November consumer price inflation in China reached 5.1% year on year, its highest level since July 2008. Higher food prices were largely to blame, but core inflation also picked up. Coming after a series of data releases showing rapid growth in investment and production, the latest inflation figures have added to worries about potential economic overheating. Food prices surged by 11.7% year on year in November, up from 10.1% in October, accounting for nearly three-quarters of the increase in headline inflation. The main drivers of higher food prices were increases in grain prices (which were up by 14.7% year on year in November) and in the cost of fresh fruit (prices for which were up by 28.1% in November, compared with 17.7% in October). Non-food prices also rose at a faster rate in November (at 1.9% year on year) than in October (1.6%), although overall they remained fairly subdued. Higher residence costs, largely reflecting rising rents, accounted for most of the boost to non-food-price inflation. There are also fears that the official inflation data underestimate the rate of inflation in China and that the true rate could be much higher.

The recent sharp rise in inflation is part of a broader trend. Also in November, producer price inflation surged to a five-month high of 6.1% year on year, while industrial production growth rose to 13.3% and money supply (M2) expanded by 19.5%. Similarly, government statistics covering 70 cities show that housing prices were up by 0.3% month on month and 7.7% year on year in November.

Chinese policymakers pay especially close attention to inflation data, given the potential implications for social stability. High inflation in the late 1980s contributed to the rise in popular unrest that culminated in the 1989 Tiananmen Square democracy movement and the subsequent bloody suppression of the protests. The fact that the current inflationary spurt is being driven by higher food prices will be of particular concern to the government, since this will hit poorer consumers hardest.

Another worry for the government is property price inflation and the problem of affordability in many of China's big cities. A report by the prestigious Chinese Academy of Social Sciences (CASS), based on a survey of 35 large and medium-sized cities conducted in September, shows that high property prices mean that 85% of urban Chinese are unable to afford to purchase their own homes. Although some cities have seen prices rise faster than others, the CASS report showed home prices running at 8.8 times average disposable income (a figure dwarfed by the ratios in the capital, Beijing, and Shenzhen, which stood at 22 and 18 times the average disposable income respectively). This multiple is far in excess of anything seen in the US in 2006 (where a property bubble touched off the recent global financial crisis), although it is more common in emerging markets for house prices to stand at high multiples of average earnings.