Price pressures grow as inflation hits 4.4%
By Wang Yanlin |
November 12, 2010, Friday
|
Print Edition
Print Edition
CHINA'S inflation rate surged to a 25-month high in October, providing a timely warning of the need to control price rises.
Economic growth remained strong with solid expansion in industrial production, fixed asset investment and retail sales.
The Consumer Price Index, the main gauge of inflation, climbed 4.4 percent year-on-year last month, the National Bureau of Statistics said yesterday.
Last month's CPI followed an increase of 3.6 percent in September. In 2010 through October, the figure rose 3 percent - pushing the government's target of controlling inflation at under 3 percent this year into mission impossible territory.
"Inflation picked up strongly in October," said Li Wei, an economist at the Standard Chartered Bank (China) Ltd. "This is worrying, as inflation is now heading towards its level in mid-2007, which was a time of overheating."
Li Maoyu, an analyst at the Changjiang Securities Co, said regulators had not paid due attention to the risk of inflation in the previous months, which allowed a structural inflation to swell into a full-blown type.
"It is impossible for consumer prices to moderate in final two months of this year, as regulators had wished," Li said.
He added that increased liquidity on the global market, following the decision by the United States to ease its monetary policy, will further fuel inflation in China.
Food costs, which account for one-third of the CPI basket, rocketed 10.1 percent year-on-year in October. The non-food sector gained 1.6 percent.
But people are feeling the strain more than the data suggests, as some staple products have rocketed in price. In Shanghai, essentials such as rice, cooking oil and clothing are much more expensive than a year earlier. The price of some varieties of apples has doubled since 2009.
Consumers are said to be stockpiling certain goods, while people in Shenzhen are reported to be traveling to buy daily necessities in Hong Kong, as they are cheaper there.
Amid anxieties that inflation could cause social unrest and destabilize economic growth, the People's Bank of China on Wednesday announced that the reserve requirement ratio was to be raised by 50 basis points to a record 18 percent.
The move forced commercial banks to put aside more money as reserves, and was estimated to freeze 300 billion yuan (US$45.2 billion) on the market.
Last month, the central bank lifted interest rates for both deposits and lending by 25 basis points, the first increase in 34 months.
A Nomura report said yesterday the latest rise in reserve requirement will reduce the likelihood of an interest rate increase for the rest of this year. But higher inflationary pressure may lead to four interest rate jumps next year.
China's industrial production gained 13.1 percent on an annual basis in October, 0.2 percentage point less than the pace in September, due to stricter power control.
The urban fixed-asset investment kept a growth of 24.4 percent from a year earlier in the first 10 months, while October's retail sales grew 18.6 percent year-on-year, 0.2 percentage point slower than in September.
Based on China's steady performance last month, Standard Chartered maintained its forecast of China's economic growth rate at 10 percent for this year.
Economic growth remained strong with solid expansion in industrial production, fixed asset investment and retail sales.
The Consumer Price Index, the main gauge of inflation, climbed 4.4 percent year-on-year last month, the National Bureau of Statistics said yesterday.
Last month's CPI followed an increase of 3.6 percent in September. In 2010 through October, the figure rose 3 percent - pushing the government's target of controlling inflation at under 3 percent this year into mission impossible territory.
"Inflation picked up strongly in October," said Li Wei, an economist at the Standard Chartered Bank (China) Ltd. "This is worrying, as inflation is now heading towards its level in mid-2007, which was a time of overheating."
Li Maoyu, an analyst at the Changjiang Securities Co, said regulators had not paid due attention to the risk of inflation in the previous months, which allowed a structural inflation to swell into a full-blown type.
"It is impossible for consumer prices to moderate in final two months of this year, as regulators had wished," Li said.
He added that increased liquidity on the global market, following the decision by the United States to ease its monetary policy, will further fuel inflation in China.
Food costs, which account for one-third of the CPI basket, rocketed 10.1 percent year-on-year in October. The non-food sector gained 1.6 percent.
But people are feeling the strain more than the data suggests, as some staple products have rocketed in price. In Shanghai, essentials such as rice, cooking oil and clothing are much more expensive than a year earlier. The price of some varieties of apples has doubled since 2009.
Consumers are said to be stockpiling certain goods, while people in Shenzhen are reported to be traveling to buy daily necessities in Hong Kong, as they are cheaper there.
Amid anxieties that inflation could cause social unrest and destabilize economic growth, the People's Bank of China on Wednesday announced that the reserve requirement ratio was to be raised by 50 basis points to a record 18 percent.
The move forced commercial banks to put aside more money as reserves, and was estimated to freeze 300 billion yuan (US$45.2 billion) on the market.
Last month, the central bank lifted interest rates for both deposits and lending by 25 basis points, the first increase in 34 months.
A Nomura report said yesterday the latest rise in reserve requirement will reduce the likelihood of an interest rate increase for the rest of this year. But higher inflationary pressure may lead to four interest rate jumps next year.
China's industrial production gained 13.1 percent on an annual basis in October, 0.2 percentage point less than the pace in September, due to stricter power control.
The urban fixed-asset investment kept a growth of 24.4 percent from a year earlier in the first 10 months, while October's retail sales grew 18.6 percent year-on-year, 0.2 percentage point slower than in September.
Based on China's steady performance last month, Standard Chartered maintained its forecast of China's economic growth rate at 10 percent for this year.
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