China inflation up, surplus also soars
China’s inflation accelerated at the quickest pace in 11 years and the trade surplus swelled, adding pressure on the central bank to raise interest rates and let the currency appreciate faster to cool the economy.
By Bloomberg |
HONG KONG: China’s inflation accelerated at the quickest pace in 11 years and the trade surplus swelled, adding pressure on the central bank to raise interest rates and let the currency appreciate faster to cool the economy.
Consumer prices rose 6.9% in November from a year earlier after climbing 6.5% in October, the statistics bureau said on Tuesday.
Surging food and fuel costs and a record $238 billion surplus in the first 11 months have prompted the government to name inflation and overheating as the biggest threats to growth. US treasury secretary Henry Paulson is in Beijing to press for yuan gains that would narrow the trade gap and staunch the flow of money into the world’s fastest-growing major economy.
“Liquidity from the trade surplus will continue to cause the economy to overheat in 2008,” said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong. “The yuan will need to appreciate at a firmer pace, interest rates will rise and the reserve requirement for banks will go to 17% by the end of next year.”
The yuan gained by the most in a month against the dollar. The currency, which has climbed 12% since a fixed exchange rate was scrapped in July 2005, rose 0.22% to 7.3792 per dollar as of 4:46 pm in Shanghai from 7.3952 late Monday. It touched 7.3770, the highest since the end of the dollar link.
The People’s Bank of China last week ordered lenders to set aside 14.5% of deposits as reserves, up from 13.5%. China’s one-year lending rate is at a nine-year high of 7.29% after five increases this year. The yield on the 4.68% bond due September 2022 rose 4 basis points, or 0.04 percentage point, to 4.72%.
The trade surplus climbed 14.7% to $26.3 billion in November from a year earlier, the third-biggest monthly total, the customs bureau said on Tuesday. The $15.2 billion trade surplus with the US pushed the 11-month total with that country to $149.2 billion.
The central bank will strictly control bank lending, raise interest rates this month and allow a faster pace of currency appreciation in 2008, said Liang Hong, a senior economist at Goldman Sachs Group in Hong Kong. People’s Bank of China Governor Zhou Xiaochuan said on Tuesday that currency policy will be used to help narrow the trade gap. A stronger Chinese currency would lower import costs and push up export prices.
Export growth has slowed from 29% in the seven months through July to between 22% and 23% for each of the past four months, after cuts to tax incentives.
“A more flexible currency is especially important now, when the risks of inflation are clearly rising in the Chinese economy,” Paulson said last week. The Treasury Secretary, in Beijing for the so-called Strategic Economic Dialogue, is fending off calls in Congress for legislation to punish China for its currency policy. The inflation rate
It’s also more than the 3.01% increase in wholesale prices in India, the key inflation measure for the world’s second-fastest growing economy, in the week ended on November 24. China’s inflation was 4.6% in the first 11 months, more than the central bank’s 3% target for the year and the key one-year deposit rate of 3.87%.
The inflow of cash from record exports, besides stoking inflation, has also fuelled a surge in property and stock prices, with the benchmark CSI 300 Index gaining 152% this year. The central bank on Tuesday ordered banks to tighten rules for real estate loans after property prices in 70 cities jumped 9.5% in October, the fastest pace in two years.
China’s economy, the world’s fourth largest, expanded 11.5% in the third quarter from a year earlier.
“There’s a chance the central bank will raise interest rates again before the end of this year,” said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp in Beijing. “The government is also likely to accelerate appreciation of the currency.”
Consumer prices rose 6.9% in November from a year earlier after climbing 6.5% in October, the statistics bureau said on Tuesday.
Surging food and fuel costs and a record $238 billion surplus in the first 11 months have prompted the government to name inflation and overheating as the biggest threats to growth. US treasury secretary Henry Paulson is in Beijing to press for yuan gains that would narrow the trade gap and staunch the flow of money into the world’s fastest-growing major economy.
“Liquidity from the trade surplus will continue to cause the economy to overheat in 2008,” said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong. “The yuan will need to appreciate at a firmer pace, interest rates will rise and the reserve requirement for banks will go to 17% by the end of next year.”
The yuan gained by the most in a month against the dollar. The currency, which has climbed 12% since a fixed exchange rate was scrapped in July 2005, rose 0.22% to 7.3792 per dollar as of 4:46 pm in Shanghai from 7.3952 late Monday. It touched 7.3770, the highest since the end of the dollar link.
The People’s Bank of China last week ordered lenders to set aside 14.5% of deposits as reserves, up from 13.5%. China’s one-year lending rate is at a nine-year high of 7.29% after five increases this year. The yield on the 4.68% bond due September 2022 rose 4 basis points, or 0.04 percentage point, to 4.72%.
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The trade surplus climbed 14.7% to $26.3 billion in November from a year earlier, the third-biggest monthly total, the customs bureau said on Tuesday. The $15.2 billion trade surplus with the US pushed the 11-month total with that country to $149.2 billion.
The central bank will strictly control bank lending, raise interest rates this month and allow a faster pace of currency appreciation in 2008, said Liang Hong, a senior economist at Goldman Sachs Group in Hong Kong. People’s Bank of China Governor Zhou Xiaochuan said on Tuesday that currency policy will be used to help narrow the trade gap. A stronger Chinese currency would lower import costs and push up export prices.
Export growth has slowed from 29% in the seven months through July to between 22% and 23% for each of the past four months, after cuts to tax incentives.
“A more flexible currency is especially important now, when the risks of inflation are clearly rising in the Chinese economy,” Paulson said last week. The Treasury Secretary, in Beijing for the so-called Strategic Economic Dialogue, is fending off calls in Congress for legislation to punish China for its currency policy. The inflation rate
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is almost double the 3.5% pace in the US in October.It’s also more than the 3.01% increase in wholesale prices in India, the key inflation measure for the world’s second-fastest growing economy, in the week ended on November 24. China’s inflation was 4.6% in the first 11 months, more than the central bank’s 3% target for the year and the key one-year deposit rate of 3.87%.
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Pork prices surged 56% in November from a year earlier, driven by a shortage of pigs. Food makes up a third of the consumer price index and rising costs pose a threat to social stability, illustrated by a stampede last month at a cooking-oil sale that killed three people in the central city of Chongqing. Overall, food climbed 18.2%. Non-food prices rose 1.4%, accelerating from a 1.1% gain in the previous month. Utility prices including water, electricity and gas rose 5.6%.The inflow of cash from record exports, besides stoking inflation, has also fuelled a surge in property and stock prices, with the benchmark CSI 300 Index gaining 152% this year. The central bank on Tuesday ordered banks to tighten rules for real estate loans after property prices in 70 cities jumped 9.5% in October, the fastest pace in two years.
China’s economy, the world’s fourth largest, expanded 11.5% in the third quarter from a year earlier.
“There’s a chance the central bank will raise interest rates again before the end of this year,” said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp in Beijing. “The government is also likely to accelerate appreciation of the currency.”
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