China's Inflation Rises At Fastest Pace In Over Two Years

11 Dec

BEIJING: China said Saturday that inflation topped five per cent for the first time in more than two years, a figure analysts said would lead to fresh interest rate hikes as officials battle to curb price rises.

The country's consumer price index rose a faster-than-expected 5.1 percent year-on-year in November as food costs continued to soar, compared with 4.4 per cent in October, the National Bureau of Statistics said.

It was the fastest increase in consumer prices since July 2008, when inflation hit 6.3 per cent, and was well above the government's full-year target for three per cent.

Analysts had forecast inflation would be 4.7 per cent on year, according to Dow Jones Newswires.

“Price rises in November are beyond many people's expectations indeed,” said NBS spokesman Sheng Laiyun.

“It will take some time for the policies (on curbing price rises) to be implemented and show clear effects.”

Ever fearful of inflation's historical potential to spark unrest in China, Beijing has ordered a range of steps to boost supplies of key goods after severe summer flooding and recent cold snaps hit yields and drove up prices.

As part of these efforts, the central bank announced in October the country's first interest rate hike in nearly three years.

On Friday, the central bank ordered lenders for the sixth time this year to keep more money in reserve as authorities struggle to stem the flood of liquidity into the economy, which is fanning the inflation problem.

Royal Bank of Canada analyst Brian Jackson said the inflation figure showed Beijing needed to “bring out the big guns” such as further interest rate hikes, with an increase in benchmark rates “any time now”.

He predicted China would raise benchmark rates by 25 basis points before year-end with rates rising a further 75 basis points over the next year.

While food costs remained the major driver of inflation last month — up 11.7 per cent on year — non-food prices also gathered pace, rising 1.9 per cent year-on-year compared with October's 1.6 per cent increase.

“It is slightly alarming that there is price pressure outside of food,” said Tom Orlik, a Beijing-based analyst with Stone & McCarthy Research Associates.

“I don't think we are going to see rampant inflation but I think 5.1 per cent is certainly enough to have the government accelerate its efforts to contain the problem.”

There had been mounting speculation that an interest rate hike or tighter lending restrictions were imminent after Beijing pledged last week to shift its monetary policy stance to “prudent” from “relatively loose” next year.

Analysts have said November could mark the peak for inflation, citing official figures that show food costs eased in recent weeks after the prices of key vegetables soared more than 60 per cent in early November.

Economists have blamed the government's 586-billion-dollar stimulus package unveiled in late 2008 in the wake of the global financial crisis and rampant lending last year for driving up prices.

Other key data showed industrial output from China's factories rose 13.3 per cent on year, up from 13.1 per cent in October, even as Beijing closed highly polluting operators and rationed power to energy-intensive industries.

Factories have been getting around the power restrictions by using diesel generators to keep assembly lines churning out goods, leading to a nationwide shortage of the fuel.

Fixed asset investment in urban areas, a measure of government spending on infrastructure, rose 24.9 per cent over the January-November period, slightly faster than the 24.4 per cent over the first 10 months of the year.

Retail sales, a key measure of consumer spending, jumped 18.7 per cent on year compared with 18.6 per cent in October.


Channel News Asia


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