• Thu
  • Jul 31, 2014
  • Updated: 3:13am
BusinessEconomy

China's consumer prices rise at steady rate of 2.5pc year on year in January

Consumer price index rises 2.5pc year on year, leaving room for interest rate reform

PUBLISHED : Friday, 14 February, 2014, 10:20am
UPDATED : Saturday, 15 February, 2014, 4:16am

The mainland's consumer price index climbed 2.5 per cent year on year last month, on par with the rise in December, which was the slowest increase since June.

The subdued inflation, while reflecting weak underlying demand, gives the top leadership room to deepen the reform of the financial system and pricing of energy and resources. Beijing has pledged to further deregulate the interest rate and exchange rate systems while also relaxing control on water and power prices to further liberalise the market.

"The moderate inflation is basically in line with expectations," said Li Huiyong , chief economist at Shanghai-based SWS Research. "Excess capacity and inadequate demand have continued to weigh on prices."

He said he expected the central bank to keep its monetary policy stance unchanged.

"Monetary policy is likely to stay prudent, instead of being loose, as authorities hope to push companies to boost efficiency in making use of their funds," Li said. "However, companies that already face rising labour and environmental-handling costs wouldn't be able afford too tight a policy."

January's inflation figure, released by the National Bureau of Statistics yesterday, was higher than the 2.0 per cent recorded a year earlier, likely because the Lunar New Year holiday began earlier this year, pushing up demand for vegetables and meat. Li said the relatively warm winter this year had curbed the rise in food prices. Food prices climbed 3.7 per cent year on year in January. Prices of non-food items rose 1.9 per cent.

The People's Bank of China said in its fourth-quarter monetary policy report that the price situation was basically stable but that upward pressures were still seen on services and agricultural products. The central bank also cautioned that a broad rise in property prices was likely to push up costs in other areas.

The producer price index fell by 1.6 per cent last month, compared with a decline of 1.4 per cent in December and a 1.6 per cent drop in January last year as overcapacity dented industrial demand.

HSBC China economist Ma Xiaoping said: "Since overall inflationary pressures remain modest, the authorities should have ample room to carry out reforms such as the deregulation of resources and utilities prices as well as continuing to push forward financial reforms including liberalisation of interest rates, the RMB [yuan] exchange rate and the capital account."

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'... the data does not lend much support to the claim that fake trades fueled a surge in last month's exports.'
(From 'Closer Look: Why January's Jump in Exports Likely Not Due to Spurious Trading', CaixinOnline)
(****english.caixin.com/2014-02-14/100638835.html)
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'In theory, theory and practice are the same. In practice, they are not.'
(Albert Einstein)
According to Keith Bradsher,
'A result of rising productivity and manufacturing overcapacity is that average prices for American imports from China have actually dropped 0.9 percent in the last year even as the renminbi has risen and Chinese wages have soared, according to data from the Bureau of Labor Statistics in Washington. That decline in prices has kept the pressure on Western competitors — and kept Chinese exports buoyant.'
(****www.nytimes.com/2014/01/10/business/international/chinese-exports-withstand-rising-labor-costs.html?ref=keithbradsher&_r=0)
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Very few people look at China’s seasonally adjusted export and import figures:
January 2014 seasonally adjusted exports:
-3.0% m/m (December: +2.2%)
January 2014 seasonally adjusted imports:
-4.5% m/m (December: +4.3%)
(****www.forexlive.com/blog/2014/02/12/chian-seasonally-adjusted-export-and-import-figures-12-february-2014/)
These figures show that China’s export/import situation hasn’t improved a lot.
The HSBC PPI (reflecting more the SMEs) has dropped below 50 recently.
The Producer Price Index has been declining continuously for the past 23 months.
Now all these data are consistent with each other.
The triple whammy of high borrowing cost (SMEs can’t even obtain the loans in the shadow banking system, let alone from the policy banks; they are crowded out of the debt market by the local governments, SOEs and the property developers),
rising wage rates (countries nearby are threatening to encroach on China's manufacturing dominance),
and the (arguably overvalued) keep-on-rising yuan (massive depreciation of the currencies of the EM countries and Japan recently),
has been hurting the SMEs (and the SOEs) and hence their exporting (and importing) abilities.
Like Europe, China is now facing more a deflationary pressure than an inflationary one, given her relatively tight monetary policy to deleverage the economy.
(Chinese readers: ****opinion.caixin.com/2014-02-13/100638328.html)
 
 
 
 
 

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