Worst Sign Yet; The price of bacon and eggs in China is soaring, another worrisome indicator the economy may overheat.

Byline: George Wehrfritz

China's prime minister, Wen Jiabao, sounded the alarm during an inspection tour of Shaanxi province. In the face of a serious nationwide pork shortage, he urged farmers on May 26 to deliver "meat that is affordable to our city folk," and warned of social instability should they fail. Whether the main culprit is a mysterious ailment that's killing swine in droves, or simply a surge in demand for China's favorite protein, the wholesale price of pork in the country was 71 percent higher in April than it had been a year earlier. According to Ministry of Agriculture statistics, consumers are now paying 29.3 percent more for pork products and 30.9 percent more for eggs, and in recent weeks the Chinese media have chronicled steep price hikes for beef, fish and chicken--all indications that inflation, which officially hovers at a benign 3 percent, could actually be running significantly higher.

China's boom--and Wen's own political fortune--hangs in the balance. Food prices are a critical indicator of whether China's economy can maintain its five-year bull run without overheating. Historically, inflation is also the harbinger of political unrest (the most recent example was the Tianan-men Square protests, which came to a head 18 years ago this week). Ever since, those who believe China can sustain double-digit growth have pointed to the relative absence of inflation. Now that pillar of the Chinese miracle is under severe pressure. Goldman Sachs and HSBC recently predicted that inflation in China would soon rise to 4 percent, well over the government's official figure and double what it was a year ago.

Last week officials pledged to help fight food-price inflation by releasing meat from the country's strategic pork reserve (stockpiled in cold storage and animals kept on the hoof). But as the mass-circulation China Daily pointed out, "The more pressing task is to prevent spiraling [food] prices from ripping through the economy."

Part of the problem is that in recent years, senior leaders (especially Wen, who holds the overall economic brief) have talked about restraint but permitted much faster growth than their predecessors. Beijing has favored a low-key incrementalism, responding to soaring foreign reserves, a yawning trade surplus and the emergence of asset bubbles in stocks and urban real estate with baby steps: a slim interest-rate adjustment here, a slight uptick in the reserve ratio there. These are modest countermeasures given the forces at play in the world's fastest-growing major economy.

Some experts laud Beijing's go-slow strategy, but others criticize the leadership for leaving economic policy on cruise control ahead of two watershed political events: a key Communist Party Congress set for October and next year's Summer Olympics in Beijing. Leaders "have an understandable desire for stability, social harmony and continued economic growth," argued Hong Kong's flagship daily, the South China Morning Post, in a blunt April 30 commentary. "But the government is approaching the economy gingerly, tweaking rather than taking forceful action that is needed."

Soaring food costs are merely the latest threat to the China boom. In recent months, GDP has hit an annual growth rate of 11.1 percent, higher than most economists expected and about 2 points over the average in previous years. That prompted the IMF to call on Beijing to hike interest rates and adopt a more flexible exchange-rate mechanism to stem the tide of money now coursing into the economy. Rocketing share prices on China's two main bourses have prompted financial luminaries--including former ...