Global Economics
China's nightmare inflation figure for August: implications
As had been expected, figures released today confirmed that Chinese CPI
inflation for August rose to a decade-high of 6.5%. As in previous months,
the entire rise was contributed by soaring food prices – meat in particular
– while non-food inflation remained tame at below 1%. Today’s data
increase the likelihood of a 27bps interest rate hike later this month.
The adverse inflation reading for August was not a surprise (see yesterday’s
Globeweb note on producer prices where we flagged this up).
While the prospects of a rate hike within the month are rising, we do not foresee
economy-wide draconian measures being implemented as high inflation is
restricted to a narrow group of food items only.
Chinese food prices are currently supply-driven and will not respond to broad
monetary policy. What is crucial, though, is that non-food inflation is tame at
sub-1% and is not exhibiting even a mild upward trend.
Nevertheless, we have another 27bps interest rate hike factored into our 2007
forecasts. Our GDP growth forecasts for China are: 11.8% (2007) and 10.7%
(2008).
Spurts in food prices are, typically, short-lived and seasonal. We think that a
comprehensive reversal is likely by year-end. Chinese monetary authorities
probably realise this, but may still use the opportunity to normalise interest rates
which, today, are far below nominal GDP growth.
There is now a growing risk of more serious policy controls within the food
sector. Direct price controls on a number of key categories may be introduced. If
this is done, reported inflation figures will level off quickly. This will help the
management of inflationary expectations – indeed, this is why policymakers
might adopt such measures. Price controls, though, are notoriously difficult to
implement – black-markets readily spring up to bypass them.
dkb today.
chinese inflation
Started by
Tor
, Sep 11 2007 07:28 AM
1 reply to this topic
#1
Posted 11 September 2007 - 07:28 AM
Observer
The future is 90% present and 10% vision.
The future is 90% present and 10% vision.
#2
Posted 11 September 2007 - 08:46 AM
SEE: http://www.nytimes.c...s...nyt&emc=rss
China is having -- or is on the verge of -- a country wide labor shortage and inflation is a real prospect for a whole lot of thngs other than food.
China is having -- or is on the verge of -- a country wide labor shortage and inflation is a real prospect for a whole lot of thngs other than food.
"Don't think...LOOK!"
Carl Swenlin, founder of Decision Point and original Fearless Forecasters board.
Carl Swenlin, founder of Decision Point and original Fearless Forecasters board.