Odd logic, 4.4% is OK? Obviously, these guys are just talk too.
China's Inflation Picks Up; Prices Seen Stabilizing (Update6)
June 11 (Bloomberg) -- China's consumer prices rose 4.4 percent in May, their biggest gain in seven years, as food costs surged. The government predicted inflation won't average more than 4 percent this year, which may reduce pressure on the central bank to raise interest rates.
The price increase from the year-earlier month exceeded April's 3.8 percent gain. Excluding food costs, prices rose ``about 0.5 percent'' in May, said Yao Jingyuan, chief economist at the National Bureau of Statistics in Beijing. He said inflation will average between 3 percent and 4 percent this year.
Bonds and stocks rose in China on expectations the central bank will hold off on raising interest rates, an increase that would be the first in nine years. Central bank Governor Zhou Xiaochuan said last month the bank was delaying any action as inflation remains below 5 percent and it needs to gauge whether curbs on investment can bring about a gradual economic slowdown.
The inflation figures ``add to the soft landing scenario,'' said Mike Moran, an economist at Standard Chartered Bank in Hong Kong. ``This reduces pressure on the central government to rush in with more tightening measures.''
Chinese Premier Wen Jiabao aims to slow economic growth to 7 percent this year from a seven-year high of 9.1 percent in 2003 after an investment boom caused energy shortages, clogged the transport network and pushed up raw-materials prices. Reports yesterday and today suggest a slowdown is under way.
Import growth slowed to 35 percent in May from 43 percent the previous month, partly because demand for steel products eased, the government said. Consumer prices fell 0.1 percent from April, without adjusting for seasonal variations, Yao said.
Turning Point
``We see the fall in prices between May and April as indicative of a turning point,'' he said in an interview. ``We will see prices stabilize or slide in the next few months.''
Food prices in May jumped 12 percent from a year earlier as grain prices surged 32 percent and cooking oil was 25 percent more expensive, the National Bureau of Statistics said on its Web site. Vehicle prices fell 3.3 percent and telecommunications equipment costs dropped 15 percent.
The yield on the benchmark seven-year government bond maturing in November 2010 fell for the first time in six days, sliding 4 basis points to 4.695 percent in Shanghai. The Hang Seng China Enterprises Index, which tracks 37 mainland companies listed in Hong Kong, closed 1.9 percent higher at 4381.23.
Lending Curbs
The central bank has raised the amount of cash banks must set aside as reserves three times since September, while the government and banking regulators have imposed a series of lending and investment curbs on fixed-asset projects in industries including autos, steel and cement.
Still, there remain calls from within the government for rates to be increased. China should scrap administrative measures that it has used to try to cool the economy ``as soon as possible'' and switch to using interest rates to regulate growth, Xia Bin, director general of the State Council's Development Research Center, said at a conference in Shanghai.
The researcher, who predicts inflation will accelerate to more than 5 percent this month, said the government is considering widening the gap between lending and deposit rates to protect banks from the impact of a rise in borrowing costs. China's one-year lending rate, which was last raised in July 1995, is 5.31 percent and its one-year deposit rate is 1.98 percent.
Bad Loans
An interest rate increase would reduce the value of 2.4 trillion yuan ($290 billion) in bonds held by the nation's banks, the researcher said. That would hurt the financial health of a banking system already burdened with bad loans estimated by Standard & Poor's at 40 percent of total lending at the end of last year.
Tim Condon, head of Asian financial markets research at ING Groep NV, said he expects the lending rate to be raised half a percentage point within three months. Goldman Sachs Group Inc. economist Hong Liang said she doesn't expect the bank to consider raising interest rates before mid-July.
Official figures released yesterday showed that industrial production growth slowed for a third month in May, M2 money supply had its smallest gain in 1 1/2 years and fixed-asset investment growth slumped to 18 percent from 35 percent in April and 44 percent in March.
Slowdown
``Signs of a slowdown are beginning to manifest,'' said Dong Tao, an economist at Credit Suisse First Boston. ``We expect a hard landing for investment, a soft landing for GDP growth, and no landing for consumption.''
Retail sales jumped 18 percent from a year earlier in May after rising 13 percent in April, the statistics bureau said today in a report on its Web site. The gain partly reflected the impact of the severe acute respiratory syndrome outbreak a year earlier, when sales growth slowed to a record 4.3 percent as the virus kept consumers at home and tourists away.
Adjusting today's figures to allow for the impact of SARS, Goldman Sachs Group Inc. estimates retail sales would have grown 13 percent in May and consumer prices increased 4.1 percent.
``Even accounting for SARS and inflation, retail sales by our estimates still shows strong consumer demand,'' Goldman economist Hong Liang said in a report.
Yuan Peg
Exports too continue to drive growth, surging 33 percent in May, the official Xinhua news agency reported, citing customs bureau statistics. That helped China post a $2.1 billion trade surplus for the month, snapping a four-month run of deficits.
A return to trade surpluses may stoke criticism about the yuan's peg to the dollar, which U.S. officials say gives China an unfair trade advantage and is partly to blame for a record $124 billion trade deficit with the Asian nation last year.
China points to its growing demand for imports as evidence that it plays fair. Commerce Minister Bo Xilai, speaking in Argentina, said China's imports will rise to $500 billion this year from $400 billion in 2003, and reach $1 trillion by 2010.
The yuan would rise to 8.076 against the U.S. dollar in a year if freely traded from the pegged rate of 8.277, forward contracts showed at 4:57 p.m. in Hong Kong. The contracts, which allow investors to bet on the future value of a currency that is not fully convertible or hedge investment denominated in it, showed that one U.S. dollar bought 8.07 late yesterday in Asia. |
