Tuesday, February 19, 2008

China Inflation January 2008

China recorded an inflation rate above 7 per cent in January – the highest in more than 11 years and providing evidence of entrenched inflationary pressures.
Consumer prices rose 7.1 percent in January from a year earlier, the statistics bureau said today, after gaining 6.5 percent in December. January's consumer prices climbed 1.2 percent from December.

Widespread expectations of a significant jump in retail inflation had been reinforced yesterday when manufacturing producer prices hit a three-year monthly year-on-year high of 6.1 per cent, mainly as a result of winter transport bottlenecks and higher commodity prices.

There are signs that global inflationary pressures have been fuelling higher ­Chinese food prices. Global prices for top-quality spring wheat - for example - have jumped by 90 per cent in the past six weeks, as corporate consumers have scrambled to secure supplies and speculators have bought stocks. The rising cost of pig feed is another example, and pork prices climbed 59 percent, edible oil 37 percent and vegetables 14 percent. Even more preoccupying is the fact that this process might now endure well into the year – creating a further headache for Chinese policymakers.

The breakdown of the CPI is also interesting, food, with a weighting of about 25%, is obviously important, and the price of foodstuffs increased 18.2 percent. Of this total, the price of grain was up by 5.7 percent.

On the other hand clothing was down by 1.9 percent year-on-year. The price of household facilities, articles, and maintenance services rose by 2.1 percent year-on-year. Of which, the price of durables rose by 0.7 percent, but household services and upkeep surged by 10.7 percent.

The price of health care and personal articles increased 3.2 percent year-on-year. The price of western medicines increased by only 0.5 percent, while that of traditional Chinese medicinal materials and medicines was up by 11.4 percent.

The price of transportation and communication dropped 1.1 percent, with transport alone dropping 2.9 percent. Communication prices fell by 19.6 percent. The price of recreational, educational and cultural articles decreased 0.3 percent. Of which, price of tuition and child care increased 0.5 percent; that of teaching materials and reference books dropped 1.3 percent; that of expenditure of culture and recreation increased 2.1 percent; that of tourism and outgoing was up by 5.1 percent; and that of cultural and recreational articles dropped 0.7 percent.The price of articles related to residence expanded 6.1 percent over the same period of the previous year. Of which, price of water (5.5%), electricity (5.7%) and fuels (4.7%) all up strongly.

Inflation has soared since last year on food and fuel costs, but it is important to note that wages were rising by a very rapid 22% on a national basis in Q3 2007, and a surging money supply increasingly poses the risk that these price gains may become self-propelling.

The threat of enduring inflation will add significantly to the pressures on Beijing to allow an even faster appreciation of its tightly managed currency. Food prices soared 18 percent after blizzards paralyzed transport systems and destroyed crops. The government faces the challenge of curbing inflation without derailing the expansion of the world's fastest-growing major economy

The renminbi, which has risen by about 13 per cent against the US dollar since mid-2005, has been rising more rapidly recently, in-creasing at an annualised rate of about 19 per cent in January.

As a result, China’s central bank is, technically, ­losing billions of dollars a month on the foreign exchange reserves it invests in US dollar instruments because it is paying higher rates at home on renminbi bank bills than it is getting in the US. The key one-year lending rate is 7.47 percent.

With interest rates on the back burner, a higher renminbi has become an important weapon for the government to fight inflation, by lowering import costs of oil and other commodities as well as soyabeans. Eighty per cent of soyabean imports are used for pig feed.

Although higher Chinese costs and currency appreciation will inflate its export prices, China is still importing inflation rather than exporting it at the moment, say economists.

“If anything, what is happening in the US is affecting China rather than the other way around,” said one ­Beijing-based economist is quoted as saying.


sharetipsinfo said...

Mumbai bomb blast can be considered as one of the most horrible attack. Due to blast even Exchanges like Regards
BSE and NSE are kept closed for one day.
Now post attack we are getting news of resignations of various political leaders and officers. So is that another political move or there inner self is waking up??

What you have to say about it??, Looks like some political move is there!!

Now stock market will be affected by all political moves, though sentiments are not good but on technical charts market is quite bullish for very short term, still sentiments will effect Nifty movement. So all are advised to trade in small quantity and with strict stoploss till the picture is clear.

www.ShareTipsInfo.com Team

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JohnUK said...

Well, looking into politician speaking (Poland - Prime Minister) sometimes I think that new election is much more important than REAL ECONOMIC FACTORS - POLAND wil lNOT adopt EURO before 2015 !!! Politician should now, that deficit is on the level of 3,9 % (forecast 2,7 %) and Maastricht criteria is not possible to catch - and adopt EUR before 2012.
Maybe 2014, 2015 - but NIT in 2012 !!! Also inflation id on the level of close to 6 % - high unemployment (in some cities 30 % ) !!! How politician want to adopt EURO without catching basic EMF criteria???? …it is only politician…so investors should look carefult what they are saying

sharetipsinfo said...

During elections time stock market act very weird. One has to be very careful while doing trading and investments in Indian stock market .

If you have any doubt please feel free to contact us.


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