China’s Inflation Accelerates as Food Prices Soar

China’s inflation accelerated more than forecast to a seven-month high as the nation’s coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery.

The consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November. The decline in the producer-price index eased to 1.9 percent.

“With growth momentum firming up and inflation picking up, the likelihood of any further easing has disappeared and the next interest-rate move will probably be an increase,” which could come as early as the fourth quarter, Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, said in a telephone interview.

Inflation may temporarily accelerate to more than 3 percent next month, Zhu said, reflecting the impact of cold weather on food prices and the weeklong Chinese Lunar New Year holiday, which fell in January last year. Read more >>

China’s Growth Slows to Three-Year Low

China’s growth slowed for a sixth quarter to the weakest pace since the global financial crisis, putting pressure on Premier Wen Jiabao to boost stimulus to secure a second-half economic rebound. Gross domestic product expanded 7.6 percent last quarter from a year earlier, the National Bureau of Statistics said today in Beijing. The pace, a three-year low, compares with an 8.1 percent gain in the previous period and the 7.7 percent median forecast of economists. Industrial production increased at a slower pace in June while retail sales growth decelerated.

Today’s data painted a mixed picture from a pickup in fixed-asset investment that could signal the economy is stabilizing to the warning sign that electricity output failed to increase in June from a year earlier. Singapore reported an unexpected economic contraction as China’s slowdown undermines a global recovery already threatened by Europe’s debt crisis and limited U.S. job growth.

“The fact that the data shows persistent weakness --rather than a precipitous plunge -- means policy makers are likely to continue incremental monetary accommodation but not embrace a more aggressive fiscal stimulus policy response in the immediate term,” said Ramin Toloui, Singapore-based global co-head of emerging-markets portfolio management at Pacific Investment Management Co., which manages the world’s largest bond fund. Read more >>

Inflation major reason Chinese citizens losing faith in government

Image by Getty Images via @daylifeInflation in China is on track to rise. According to the National Bureau of Statistics (NBS), the consumer price index (CPI) rose 3.2% in the first 11 months of this year. In November alone, the CPI rose 5.1% year-on-year and 2% month-on-month. And the CPI increase was mainly propelled by price hikes for foodstuffs. In November, food prices rose 11.7% year-on-year. The Blue Paper says food price hikes seriously affect living standards, especially for low-income families.

A December 15 survey by the research arm of the People's Bank of China (PBoC), the country's central bank, also reached a similar conclusion.

A questionnaire given to 20,000 bank depositors in 50 cities found their satisfaction with consumer goods-prices in the last quarter of this year had dropped to the lowest level since the last quarter of 1999. About 74% of the respondents thought prices were "unbearably high". This is 16 percentage points higher than in the third quarter. Only 25% of the respondents said the current price level was "acceptable", and most respondents expected inflation to intensify.

While the Blue Paper and the PBoC survey fail to mention it explicitly, it is apparent that dissatisfaction with inflation is a major reason for people's waning confidence in their government. At the annual session of the National People's Congress (NPC) in early March, Premier Wen Jiabao set this year's target of keeping inflation under 3%. It seems certain this will be "mission impossible", as CPI was expected to go up even more for December. More...