China’s inflation jumps to 3-year high

Discussion in 'China' started by nrj, Jul 9, 2011.

  1. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    BEIJING — China’s surging inflation accelerated to a three-year high in June even as the overheated economy began to cool.

    Consumer prices rose 6.4 percent over a year ago, a sharp jump from May’s 5.5 percent rate, data showed Saturday. It was driven by a 14.4 percent rise in politically volatile food costs, up from 11.7 percent in May.

    “This far exceeds expectations,” said IHS Global Insight analyst Alistair Thornton.

    Communist leaders declared taming prices their priority this year and have been frustrated as inflation rose steadily, even as manufacturing and other activity eased in the face of repeated interest rate hikes and other controls.

    Inflation is politically dangerous for the ruling communists because it erodes economic gains that underpin their claim to power and can fuel unrest.

    The Cabinet’s planning agency had forecast that June inflation would likely exceed May’s increase due to summer flooding that damaged crops and pushed up prices of pork and vegetables.

    The price of pork, the country’s staple meat, jumped 57.1 percent in June, the National Bureau of Statistics reported. That is especially sensitive in a society where poor families spend up to half their incomes on food.

    The June figures were released earlier in the month than usual in what the bureau said is a new policy to prevent leaks by announcing data as soon as they are compiled.

    A state newspaper said last month that several officials of the bureau and China’s central bank were fired on suspicion of leaking data to stock brokerages, which might have profited from being able to anticipate changes in financial markets.

    Analysts blame the inflation spike on the dual pressures of consumer demand that is outstripping food supplies and a bank lending boom they say Beijing allowed to run too long after it helped China ward off the 2008 global crisis.

    Li Peilan, a 70-year-old Beijing housewife, said food costs consume nearly half her family’s 6,000 yuan ($920) monthly income.

    “Considering other costs such as buying other daily items and the education of my grandson, we are almost spending all of our income now,” Li said as she shopped at a market in the Chinese capital.

    Rapid growth in factory output and other activity have eased in recent months as the government tries to steer world’s second-largest economy to a more manageable growth pace after last year’s double-digit expansion.

    Beijing has raised interest rates five times since October — most recently on Wednesday — but analysts say another rise or tighter limits on bank lending might be imposed if inflation stays high.

    The rate hikes also increase the payout on bank deposits, which helps to put money in consumers’ pockets. Still, the 3.5 percent deposit rate after the latest increase is well below inflation, meaning Chinese households lose money by keeping it in the bank.

    China’s economy expanded by a sizzling 9.6 percent in the first quarter of the year and even though growth is easing, it is expected to be close to 9 percent in the second quarter. The World Bank raised its forecast of China’s economic growth in April from 8.5 percent to 9.3 percent and said Beijing should tighten monetary policy further.

    Premier Wen Jiabao, the country’s top economic official, expressed confidence last month that inflation was under control. But he later acknowledged it would overshoot the official 4 percent target for the year.

    June’s rise in the consumer price index was the fastest since 7.1 percent rate in June 2008.

    “I don’t think this means the wheels are falling off. But it means they underestimated what pumping all that money into the system over the past three years can do,” Thornton said.

    China’s central bank governor said Friday that the bank’s inflation fight is complicated by the fact that its official mission requires it to support growth and employment.

    “It’s difficult for China’s central bank to only set one objective of controlling inflation,” governor Zhou Xiaochuan said in a speech at Tsinghua University, the newspaper Beijing News reported.

    Zhou said China “can tolerate a certain degree of inflation” in the course of rapid changes in its economic growth patterns, the newspaper said.

    Analysts expect inflation to stay high through at least July but said it should decline in the second half of the year as the economy cools.

    Manufacturing activity in June slipped to a 28-month low due to curbs on credit and weaker overseas demand, according to the China Federation of Logistics and Purchasing, an industry group. It said the downward trend was likely to continue.

    “Growth will continue to slow,” HSBC economist Qu Hongbin said this week. “This is a necessary evil for China to fight inflation.”

    AP
     
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  3. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    China Inflation Quickens to Fastest in Three Years on Food Costs - Businessweek

     
  4. Yusuf

    Yusuf GUARDIAN Administrator

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    Rising food prices is a worldwide phenomenon and no one is able to control it.

    The other day I read a report about a survey in the western world including US and UK in which the respondents said they had actually changes their eating habits as well as slowed down in eating out because of the rising food prices. People were actually saying they now eat stuff which costs relatively cheaper than eating want they want.
     
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  5. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    Population has exploded in such a proportion that managing its demand & the relative cost of production is going crazy. Distribution is major challenge as well. China can control its inflation if willing to divert its internal security expenditure (which is greater than its army budget) to ease daily commodity prices.
     
  6. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    Such a high food inflation in China would mean the biggest factor contributing to this is the drought situation due to the Three Gorges Dam.
     
  7. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    That only affected 2% of all agriculture and the effects were mostly local. It is the smallest contributing factor when it is money supply expansion, rising wages, hot money and lack of capital outflow that is driving up the CPI.
     
  8. no smoking

    no smoking Senior Member Senior Member

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    Well, so far there is no solid evidence that these droughts are brought by three georges dam. All we got today are just some scientists' opinion.

    And another thing you are missing is that there were always 30% of china cultivated land were impacted by various kinds of disasters, flood, or drought, snow, etc.
     
  9. cw2005

    cw2005 Regular Member

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    Armand, this is the first time I agree and support your argument. It is "lack of capital outflow" causing the high jump of property price and those ghost town.
     
  10. amoy

    amoy Senior Member Senior Member

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    Contrary to this quite a lot of outflow going on either by corporate acquisition overseas or private consumption. Chinese driving up property prices in Canada (Vancouver, Toronto mostly) is well known
     
  11. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    The Chinese living in Vancouver, California, Taiwan and Hong Kong are sending money into China that dwarfs anything that leaves it by a handful of millionaires with connections to get money out. Hot-money inflows has been on the top of CCP agenda for years. Chinese SWF is dwarfed by the hundreds of billions of private equity funds going into China, for example George Soros' fund has more into China than the SWF has out of it in a particular year. There have been $50 billion worth of shorting funds created in the last 3 months. Private consumption in China of foreign goods doesn't come close to counter the flood of cash coming in from exports. Simple fact is, you want to cut inflation, balance your inflows to outflows and quit printing excess money.
     
  12. mattster

    mattster Respected Member Senior Member

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    I'm an engineer, so i dont understand a lot of this economics stuff.......but it would seem to me that any country anywhere that is having a breakneck 10% to 11% growth rate is going to have serious inflation problem. If you have 11% growth - doesnt that mean that there is a ton of liquidity in the system which in turns creates all kinds of NPLs, and speculation in property etc.

    The whole US sub-prime mess is a result of too much liquidity in the system - when there is so much money floating in the system, people are going to make more money by taking huge risks in trying to put that money to work.

    So how do you tame inflation with 10 to 11% growth ? Reducing to 9.5% isnt going to do jack. I dont see how China has stop inflation unless it seriously cuts down the growth rate to something like 7% to 8%.

    Am I wrong ?
     
  13. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Excess liquidity and NPLs aren't a symptom of growth, it is a symptom of wreckless bank lending. Growth is a short term symptom of that lending which will have its day of reckoning when it can no longer be hidden by restructuring. M2 money supply has been increased by a factor of 3 over the growth it creates which = unsustainable.

    Take US sub-prime crisis by a factor of 10X and you get China's problem.

    The growth is caused by excess lending, it is not the cause. The cause is excess bank lending which needs to be scaled back to its pre-crisis levels. Problem with that is the economy will tank because 70% of GDP is tied to fixed asset investment.
     
  14. no smoking

    no smoking Senior Member Senior Member

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    Another typical example of myth from overseas pro-democratic activities.
    Do you have any idea what the meaning of your so called "internal security" in china's budget?
    It includes the following budgets:

    police department
    public traffic management department
    fire fighting department
    Anti-smuggling department
    society wellfare department

    So, tell me which one you think can be cut off.
     
  15. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    ^^ Don't forget the payroll for 40,000+ internet police. :laugh:
     
  16. Virendra

    Virendra Moderator Moderator

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    self delete
     
    Last edited: Jul 13, 2011
  17. Rick

    Rick Regular Member

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    I'm Ok with them, if they are dealing with cyber crime more than blocking me from facebook and twitter.So geneally speaking internet cops are necessary, but some of their jobs are not so.

    Irrelative.According to your theory US can greatly speed its health care reform by using it's military expenditure.But the fact is you can't cut your own flesh to feed youself, that's not the cure.
     
  18. Rick

    Rick Regular Member

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    Sorry to hear the news about what happened in Mumbai.But it also proved again that how important internal security expenditure is.To prevent this kind of terror attack more money in internal security expenditure is defenitely worthy.Americans they do the same after 911.
     
  19. Ray

    Ray The Chairman Defence Professionals Moderator

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    An assessment of the Three Gorges from China.
     
  20. Ray

    Ray The Chairman Defence Professionals Moderator

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  21. Ray

    Ray The Chairman Defence Professionals Moderator

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