China inflation surges to 11-year high on food, fuel
Friday, 14 December 2007
Nipa Piboontanasawat
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 per cent in November from a year earlier after climbing 6.5 per cent in October, the statistics bureau said today. That was more than the 6.5 per cent median estimate of 21 economists surveyed by Bloomberg News.
Surging food and fuel costs and a surplus that climbed to a record $238 billion in the first 11 months have prompted the government to name inflation and overheating as its biggest concerns. U.S. Treasury Secretary Henry Paulson, in Beijing for economic and trade talks, recommends a stronger yuan as a remedy.
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 Inc. in Hong Kong.
The yuan rose by the most in a month against the dollar on speculation rates will rise. The currency gained 0.19 per cent to 7.3811 per dollar as of 2:20 p.m. in Shanghai from 7.3952 late yesterday. It touched 7.3770, the highest since a peg to the U.S. currency was scrapped in July 2005.
The yuan has gained 12 per cent versus the dollar since the fixed exchange rate ended. A stronger Chinese currency would lower import costs and slow money inflows by pushing up export prices.
The yield on the 4.68 per cent bond due September 2022 rose 4 basis points, or 0.04 per centage point, to 4.72 per cent at 2:42 p.m. in Shanghai. The trade surplus climbed 14.7 per cent to $26.3 billion in November from a year earlier, the third-highest monthly total, the customs bureau said today. The $15.2 billion trade surplus with the U.S. pushed the 11-month total with that country to $149.2 billion.
People's Bank of China Governor Zhou Xiaochuan said today that the nation's currency policy will be used to help narrow the gap. Export growth has slowed from the 29 per cent pace in the seven months through July to between 22 per cent and 23 per cent for each of the past four months, after cuts to tax incentives.
The nation has cracked down on bank lending and raised interest rates five times this year to curb inflation, asset bubbles and excessive investment leading to industrial overcapacity.
"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 U.S. official, who's in China for the so-called Strategic Economic Dialogue, is trying to coax yuan gains while fending off calls in Congress for legislation to punish the Asian nation for its currency policy.
China's one-year lending rate is at a nine-year high of 7.29 per cent. The People's Bank of China last week ordered lenders to set aside more deposits as reserves for a 10th time this year. "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.''
The inflation rate is nearly double the 3.5 per cent pace in the U.S. 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 Nov. 24.
China's 11-month rate of 4.6 per cent compares with the central bank's 3.0 per cent target for the year. Pork prices surged 56 per cent in November from a year earlier on a pig shortage. 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 per cent. Non-food prices rose 1.4 per cent, accelerating from a 1.1 per cent gain in the previous month. Utility prices including water, electricity and gas rose 5.6 per cent. China's economy, the world's fourth largest, expanded 11.5 per cent in the third quarter from a year earlier.
Bloomberg
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 per cent in November from a year earlier after climbing 6.5 per cent in October, the statistics bureau said today. That was more than the 6.5 per cent median estimate of 21 economists surveyed by Bloomberg News.
Surging food and fuel costs and a surplus that climbed to a record $238 billion in the first 11 months have prompted the government to name inflation and overheating as its biggest concerns. U.S. Treasury Secretary Henry Paulson, in Beijing for economic and trade talks, recommends a stronger yuan as a remedy.
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 Inc. in Hong Kong.
The yuan rose by the most in a month against the dollar on speculation rates will rise. The currency gained 0.19 per cent to 7.3811 per dollar as of 2:20 p.m. in Shanghai from 7.3952 late yesterday. It touched 7.3770, the highest since a peg to the U.S. currency was scrapped in July 2005.
The yuan has gained 12 per cent versus the dollar since the fixed exchange rate ended. A stronger Chinese currency would lower import costs and slow money inflows by pushing up export prices.
The yield on the 4.68 per cent bond due September 2022 rose 4 basis points, or 0.04 per centage point, to 4.72 per cent at 2:42 p.m. in Shanghai. The trade surplus climbed 14.7 per cent to $26.3 billion in November from a year earlier, the third-highest monthly total, the customs bureau said today. The $15.2 billion trade surplus with the U.S. pushed the 11-month total with that country to $149.2 billion.
People's Bank of China Governor Zhou Xiaochuan said today that the nation's currency policy will be used to help narrow the gap. Export growth has slowed from the 29 per cent pace in the seven months through July to between 22 per cent and 23 per cent for each of the past four months, after cuts to tax incentives.
The nation has cracked down on bank lending and raised interest rates five times this year to curb inflation, asset bubbles and excessive investment leading to industrial overcapacity.
"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 U.S. official, who's in China for the so-called Strategic Economic Dialogue, is trying to coax yuan gains while fending off calls in Congress for legislation to punish the Asian nation for its currency policy.
China's one-year lending rate is at a nine-year high of 7.29 per cent. The People's Bank of China last week ordered lenders to set aside more deposits as reserves for a 10th time this year. "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.''
The inflation rate is nearly double the 3.5 per cent pace in the U.S. 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 Nov. 24.
China's 11-month rate of 4.6 per cent compares with the central bank's 3.0 per cent target for the year. Pork prices surged 56 per cent in November from a year earlier on a pig shortage. 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 per cent. Non-food prices rose 1.4 per cent, accelerating from a 1.1 per cent gain in the previous month. Utility prices including water, electricity and gas rose 5.6 per cent. China's economy, the world's fourth largest, expanded 11.5 per cent in the third quarter from a year earlier.
Bloomberg