At the Chunxiu Road Vegetable Market in central Beijing, shoppers and stallholders are grumbling about the price of food.

Pork laid out on plastic slabs has increased from about 7 yuan (92 cents, 46 pence) a jin (500 grams) last year to 11 or 12 yuan now.

A rise of up to 70%

Food price increases this year have led to a sharp rise in the consumer price index, the main gauge of inflation which jumped to 5.6% in July, its highest level in 10 years.

In a country where inflation and social unrest are historically linked, that statistic cannot be ignored by China's leaders.

On several occasions in the past, rising food prices in China have led to political problems for the government.

Inflation in 1988 is thought to have contributed to the demonstrations in Beijing's Tiananmen Square the following year.

China has enjoyed many years of amazingly fast growth and incredibly intense foreign direct investment while still, even more astoundingly, keeping domestic inflation to nearly nothing - around 1%.  When GDP rises much faster than inflation (and wages follow, which they seem to be doing), the real standard of living of the population expands quickly and has nearly quadrupled in China in the past two decades. 

China is hoping for another quadrupling in the next 20 years, but it seems they can't keep prices down forever as an increasingly prosperous population desires more "higher-input" items and puts growing demand pressure on products which used to be luxuries - like meat.  Consumer inflation is calculated by comparing the change over time of the aggregate price of a typical "basket" of goods that constitues a large portion of what the average household spends their money on. 

In the US - the average household spends only a small fraction of their income on food, and the cyclical operation of free markets for agricultural commodities creates enough volatility to justify ignoring food prices.  In China however, the average household spends quite a lot of their income on food, the prices of which are somewhat more stable due to significant government intervention like price controls. So food prices go in the measured basket and that makes Chinese inflation very sensitive to "agflation" or increases in the price of agricultural products. Globally, agflation has been a prominent feature of the last two years for almost all commodities, yielding record prices for wheat, corn, rice, and soybean. 

The real concern is that, as Chinese food prices rise, so will demands for higher wages, which result in more expensive goods in the global marketplace increasingly dependent on cheap Asian production - thereby spreading Chinese inflation worldwide in a way that central banks cannot easily control. The Chinese government, given their success over the last 20 years, will probably be able to keep the inflation rate from going higher, and may even be able to lower it to the target level of around 3% and therefore preserve their real rate of growth.  Other countries have not been so successful. 

Examples include Venezuela, which despite record oil revenues and steady double-digit economic growth is experiencing an even higher rate of inflation - estimated at between 17 and 25%.  This means that the rapid increase in industrial activity and wages still cannot keep up with prices and that, on average, Venezuelans are gradually becomming poorer despite the promises of Hugo Chavez's "21st century Socialism".  Official statistics showing an increase in GDP per capita are misleading since they assume the government mandated rate of exchange, which is generally accepted to significantly overvalue the Venezuelan currency.

A more onerous example is Zimbabwe, where a once vibrant economy is being all-but-destroyed by the disastrous policies of Robert Mugabe. Inflation is so high, as to be almost unmeasurable in a meaningful way comparable to the workings of a functional economy.  The Zimbabwe Central Statistics Office reports that present Year-on-Year inflation is 3,713.9% [you've got to love that .9 level of accuracy!] and that prices have doubled in since July when annual inflation was 7,638%.  The Consumer Council of Zimbabwe says that inflation is more like 13,000% and the IMF warns that it could go as high as 100,000% by the end of this year. 

The tragedy of Zimbabwe is practically a textbook in how not to manage an economy.  Most aid agencies predict a spectacular collapse in the coming years which could threaten stability throughout Southern Africa. Zimbabweans have lost all faith and place no value in the national currency and use it only when obligated to do so by the government.  Millions have fled the crisis to nearby South Africa, and most of those that have remained have resorted to storing value in goods and conduct exchange by black-market barter.