By Geoff Dyer in Beijing
Published: December 11 2010 18:37 | Last updated: December 11 2010 18:37
Published: December 11 2010 18:37 | Last updated: December 11 2010 18:37
Chinese inflation jumped again in November to over 5 per cent, putting pressure on the authorities to raise interest rates and further rein in the huge monetary stimulus of the last two years.
The consumer price index rose by 5.1 per cent in November, higher than expected and up from 4.4 per cent in October, which was already well above the 3 per cent target that the government has set for inflation.
Senior Chinese officials began an annual meeting in Beijing over the weekend to chart economic policy for the next year, which state media said would focus on how to contain inflation.
The Politburo has already announced a shift in monetary policy from the “appropriately loose” stance of the last two years to “prudent” and some analysts expect an imminent increase in interest rates. On Friday, the central bank raised reserve requirements for commercial banks for the fifth time this year and the third in just over a month in order to drain liquidity from the financial system.
The biggest contributor to rising inflation was food prices, which increased 11.7 per cent year-on-year, from 10.1 per cent in October. However, non-food inflation also increased from 1.6 per cent y-o-y in October to 1.9 per cent.
According to Qian Wang at JP Morgan in Hong Kong, strong fiscal spending “coupled with the still accommodative monetary environment…. and still low interest rates, indeed raise the risk of overheating by early next year.”
However, Andy Rothman at CLSA in Shanghai said that the current increase in inflation was primarily the result of bad weather, which has raised the price of vegetables. Although interest rates might rise by 0.25 per cent before the end of the year, he said there would not be a significant tightening of monetary policy next year.
Instead, the increase in factory-gate inflation would lead to lower corporate profits as companies found their margins squeezed. “Overcapacity and strong competition leaves few firms with the ability to fully pass these higher costs on to final goods prices,” he said.
The government said on Friday that exports increased 34.9 per cent year on year in November, while imports surged 37.7 per cent. On Saturday it said that the rate of growth in industrial production increased slightly to 13.3 per cent last month, while the increase in fixed asset investment also accelerated from 24.4 per cent in January to October, compared to the same period the year before, to 24.9 per cent in January to November.
The consumer price index rose by 5.1 per cent in November, higher than expected and up from 4.4 per cent in October, which was already well above the 3 per cent target that the government has set for inflation.
Combined with a renewed increase in fixed asset investment and jump in exports over the last month, the further increase in inflation will add to concerns about an overheating economy.
Senior Chinese officials began an annual meeting in Beijing over the weekend to chart economic policy for the next year, which state media said would focus on how to contain inflation.
The Politburo has already announced a shift in monetary policy from the “appropriately loose” stance of the last two years to “prudent” and some analysts expect an imminent increase in interest rates. On Friday, the central bank raised reserve requirements for commercial banks for the fifth time this year and the third in just over a month in order to drain liquidity from the financial system.
The biggest contributor to rising inflation was food prices, which increased 11.7 per cent year-on-year, from 10.1 per cent in October. However, non-food inflation also increased from 1.6 per cent y-o-y in October to 1.9 per cent.
According to Qian Wang at JP Morgan in Hong Kong, strong fiscal spending “coupled with the still accommodative monetary environment…. and still low interest rates, indeed raise the risk of overheating by early next year.”
However, Andy Rothman at CLSA in Shanghai said that the current increase in inflation was primarily the result of bad weather, which has raised the price of vegetables. Although interest rates might rise by 0.25 per cent before the end of the year, he said there would not be a significant tightening of monetary policy next year.
Instead, the increase in factory-gate inflation would lead to lower corporate profits as companies found their margins squeezed. “Overcapacity and strong competition leaves few firms with the ability to fully pass these higher costs on to final goods prices,” he said.
The government said on Friday that exports increased 34.9 per cent year on year in November, while imports surged 37.7 per cent. On Saturday it said that the rate of growth in industrial production increased slightly to 13.3 per cent last month, while the increase in fixed asset investment also accelerated from 24.4 per cent in January to October, compared to the same period the year before, to 24.9 per cent in January to November.
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