China inflation

By Max J. Zenglein, Mercator Institute for China Studies

China’s leaders place high hopes on the vibrancy of the economy’s service sector, but in reality it has not been able to fill the void left by the decline of manufacturing. The inability of services to pick up the slack in turn creates a temptation for the government to delay overdue structural reforms while maintaining a reliance on investment-driven growth. Read more

While China’s rapidly rising debt incites worries among many, China’s leadership seems so determined to meet overly ambitious GDP growth targets that leverage is set to continue to increase steadily. The government targets credit growth of 16 per cent this year, once changes in local government financing are taken into account, and credit expansion so far this year has broadly been in line with that target. Read more

The second cut in China’s interest rates in three months reveals key elements in Beijing’s thinking as it tries to reconcile an economic policy agenda beset with conflicting priorities, analysts said on Monday.

The task before China requires some delicate manoeuvres. It aims to wean the country off an extraordinary debt binge (see Martin Wolf ) while keeping GDP growth fairly robust. It hopes to combat disinflationary pressures while preventing the renminbi from sliding too sharply against the US dollar. It wants to curb a dangerous slump in industrial profits without resorting to another round of investment pump-priming. It needs to keep domestic liquidity levels buoyant in spite of a surge in capital flight.  Read more

China faces a monetary policy “wall of worry” as its economy slips towards a deflationary spiral driven by structural forces that are simultaneously dragging prices lower and depressing economic growth, analysts said on Tuesday.

The important insight, the analysts said, behind a decline in consumer price inflation (CPI) to a five year low of 0.8 per cent in January was that it was caused not by isolated or temporary factors but by a confluence of mutually-reinforcing trends that will require a concerted and accelerated easing in monetary policy if China is to avoid a deflationary cliff. Read more

An Indian labourer carries a sack of vegetables on his head at a wholesale market in Kolkata on September 14, 2011Economists expect the drop in global food prices to help keep inflation low across emerging Asia over the next year, benefiting consumers and allowing central banks to keep monetary policy loose.

The International Monetary Fund estimates that global commodity prices are 8.3 per cent lower than at the start of the year. This can have some complicated effects, with some winners and losers within the same country. Read more

By Guonan Ma, Bruegel

Against a backdrop of weakening domestic demand, and in the slipstream of a major debate about whether Chinese monetary policy in the last year has been too restrictive, there have been definite signs of Chinese monetary loosening in recent weeks. This makes sense. Timely and measured monetary easing will support growth, facilitate structural rebalancing and underpin rapid economic reform.

There is little doubt that Chinese growth has been losing momentum. During the past few quarters there were clear signs of rising inventories, slumping property sales, producer price deflation, declining consumer price inflation, weakening corporate earnings, slowing investment and anaemic industrial production. Fortunately, private consumption is still holding up. Read more

Is China’s recovery underway? What do all the recent numbers mean?

Beyondbrics brings you a few pointers to the batch of Chinese economic data, and what the commentators think. Read more

From the numbers alone, it’s not immediately clear what’s good or bad about China’s inflation data out on Tuesday.

The year on year June figures show consumer prices are up 2.7 per cent, a rise from 2.1 per cent annual inflation in May. That doesn’t sound too bad, does it? After all, China’s aim is for inflation to be 3.5 per cent 2013. But what is pushing inflation up? Food – particularly pork prices – and property. This isn’t the type of demand that China wants. Read more

After what looked like a troubling surge in inflation in February, China’s CPI figure has dropped back sharply in March.

The February figure of 3.2 per cent had prompted a warning from central bank governor Zhou Xiaochuan in March that China should be on “high alert” over rising inflation. In which case, the March data should settle the nerves. But does the low figure show a weaker-than-expected recovery? Read more

Does Chinese industry need more inflation?

The question might seem absurd for a fast-growing developing economy but with consumer prices increasing at just two per cent, Gavekal Dragonomics, the China economic research consultancy, is arguing that inflation is “more a friend than a foe.” Read more

China’s consumer price inflation fell to a 30-month low of 1.8 per cent in July. Factory-gate inflation was even weaker, with producer prices falling 2.9 per cent. As Simon Rabinovitch wrote in the FT, combined with slowing industrial production and retail sales, it’s a “sluggish start to the second half of the year”.

Will this prompt further monetary easing? Read more

Front page stories about a looming food crisis have particular resonance at the moment for China. Just when Beijing is trying to engineer a soft landing for the economy, and stimulate some growth in the second half of the year, the spectre of price rises is back.

Aside from the usual concerns about the social impact of higher food prices, there is understandable concern that China’s easing may also hit another buffer. Read more

Chinese policy makers spend a lot of their time worrying about inflation. But the growing risk now appears to be deflation.

Official data released on Monday show that the consumer price index rose 2.2 per cent in June from a year earlier, down from 3 per cent in May. But as our charts show, key indicators such as money growth and producer prices suggest that CPI has much further to fall. Read more

Chinese stocks fell sharply on Monday after Beijing released figures showing year-on-year inflation fell to 2.2 per cent in June, from 3 per cent in May, the lowest since January 2010.

The Shanghai composite index closed 2.4 per cent down in its biggest drop in a month and the Hang Seng traded 1.5 per cent lower. The fall has prompted talk of further easing, even after China cut its benchmark rate to 6 per cent last week in a surprise move. The Xinhua news agency quoted premier Wen Jibao talking of “aggressive efforts to preset and fine-tune economic policies”. Read more

Maybe it was all just wishful thinking. Analysts who said Chinese growth hit bottom in Q1 look to have been proved wrong, after a raft of miserable data from the world’s second largest economy showing that things are getting even worse.

Everything is falling. Read more

Chinese inflation is up again, imports are down again and export growth looks tepid. These and other puzzling data have put China back in an old bind: how to support growth without unleashing the dragon of inflation. Read more

By Ben Simpfendorfer of Silk Road Associates

The rise of the emerging world’s middle-class offers the promise of a new global growth driver at a time when American and European households are spending less.

It’s also popular to imagine the rise as a straight-line trajectory buoyed by surging sales of Louis Vuitton bags and Audi sedans.

Yet the reality is often very different, especially in China where parts of the middle class are a mile wide, but an inch deep. Read more

The most lucrative investment strategy in China? Go long vegetables – just be sure to pick the right one.

After the prices of garlic, mung beans and corn spiked at different times over the past few years, the humble onion is now getting its day in the sun. Chinese green onions, which resemble leeks and are a stir-fry staple, cost about Rmb7 ($1.10) per kilogram these days, five times more than a year earlierRead more

Oil futures declined on the news that China’s export growth rate was slowing based on data released over the weekend. This might seem good news for inflation in India and China but don’t celebrate just yet: the respite is likely to be short-lived.

Frederic Neumann, an HSBC economist, argues that oil prices drifting higher – currently at about $106 per barrel – feeds eventually into higher prices for food through higher transportation and fertiliser costs. Read more

China’s low inflation number for February has given the market something to cheer. Price pressures are easing, and so the great Chinese credit taps can heave back into life.

But don’t get too carried away – the data still looks pretty inconclusive.  Read more