Monday 8 April 2013

Chinese inflation slows sharply in March



Chinese inflation slowed sharply in March as food prices fell in the wake of the country’s New Year holiday and the central bank drained cash from the economy.

Consumer prices rose 2.1 per cent in March from a year earlier, below expectations and down from a ten-month high of 3.2 per cent in February when China celebrated its Lunar New Year. Food price inflation, which had surged to 6 per cent year on year in February, fell back to a pace of 2.7 per cent.


Looking past the seasonal rise and fall in prices caused by the holiday, Chinese inflation has remained mild this year. The average increase in consumer prices in the first quarter was 2.4 per cent, up only a little from the final quarter of 2012. Analysts said the subdued inflation was a reflection of how the Chinese economic recovery has been steady but unspectacular.

As consumer demand increases and excess capacity in industry is whittled away prices are likely to rise in China, but these trends have been progressing more gradually than many economists had predicted at the start of the year.

“Overall, the recovery has been moderate which helps to rein in the inflation pressure from the demand side,” said Jian Chang, an economist with Barclays. “Recovery means a continued rise, so we have been saying it looks more like a growth stabilisation, a gradual and moderate improvement.”

After bottoming out at 7.4 per cent annual growth in the third quarter of 2012, China rebounded to 7.9 per cent in the fourth quarter and is expected to have narrowly topped that pace in the first quarter. Beijing will report its first-quarter gross domestic product next week.

The Chinese central bank has drained cash from the economy for seven straight weeks since the Lunar New Year holiday ended in mid-February, helping to counter inflationary pressure and keep growth from overheating.

While the withdrawals – via open market operations – have been moderate, they have made clear that the central bank has shifted to a slight tightening bias after injecting cash in the financial system in the second half of last year to support the economic recovery.

Zhou Xiaochuan, governor of the People’s Bank of China, said last month he was “on high alert” against prices increases and added that experience had taught him not to delay the fight against inflation.

Chinese officials have warned that monetary easing by developed countries from the US to Japan could send waves of hot money into emerging markets, fuelling inflationary pressure.

There is evidence that China has already been on the receiving end of major capital inflows since late last year. A record amount of foreign currency entered the country’s financial system in January and analysts say the central bank has had to step up its interventions in the foreign exchange market to keep the renminbi from appreciating

No comments:

Post a Comment