China’s Inflation Exceeds Target, Adding Rates Pressure

by
February 15, 2011

By Bloomberg News

China’s inflation exceeded the government’s 2011 target for a fourth month as prices excluding food rose by the most in at least six years, escalating pressure on the central bank to keep raising interest rates.

Consumer prices rose 4.9 percent last month from a year earlier, the statistics bureau said in a statement on its website today. That compared with a 4.6 percent gain in December and the median forecast of 5.4 percent in a Bloomberg News survey of 27 economists. Producer-price inflation accelerated to 6.6 percent from 5.9 percent in December.

A drought in wheat-growing regions, rising global commodity prices and a 53 percent increase in money supply in two years are adding to price pressures in the fastest-growing major economy. Officials may frontload policy tightening in the first half of the year as inflation remains elevated, according to economists from JPMorgan Chase & Co. and Morgan Stanley.

“All these numbers indicate that inflationary pressures have not abated and China has already entered into an era of structural inflation,” said Liu Li-gang, an economist at Australia & New Zealand Banking Group in Hong Kong. “This indicates more monetary policy tightening ahead.”

The statistics bureau said that a reweighting of the consumer-price index, including cutting the contribution from food, boosted the headline rate by 0.024 percentage point. Mizuho Securities Asia Ltd. disagreed, saying that without the change the number may have been 5.1 percent.

Stocks Rise

The benchmark Shanghai Composite Index rose 0.6 percent as of the 11:30 a.m. break in trading after today’s inflation number matched speculation yesterday.

Non-food prices rose 2.6 percent from a year earlier. The government is targeting 4 percent inflation this year, state television reported in December.

“The driver of the below-consensus reading is the smaller- than-expected increase in food prices,” said Lu Ting, a Hong Kong-based economist with Bank of America Merrill Lynch.

Food climbed 10.3 percent last month from a year earlier, according to today’s report, after gaining 9.6 percent in December. Vegetable prices jumped 2 percent, fruit prices surged 35 percent and grain rose 15 percent, according to the statement.

To read more, visit: http://www.bloomberg.com/news/2011-02-15/china-s-january-consumer-prices-increase-4-9-producer-prices-climb-6-6-.html

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