Chinese inflation soared past forecasts to a 28-month high last month and showed signs of spreading beyond food prices, putting pressure on the government to ratchet up its monetary tightening.
A day before the data, China’s central bank raised lenders’ reserve requirements for the third time in a month to soak up some of the excess cash in the economy that is driving prices higher. With inflation on the march, analysts said that more -resolute action was likely needed.
“At least one interest rate rise is needed for this year, otherwise authorities will give the public quite a surprising message, because if you see inflation but no rate hike, people will doubt the determination to fight inflation,” said Shen Jianguang (沈建光), an economist with Mizuho Securities in Hong Kong.
The data published yesterday should give the Chinese government the confidence to intensify its tightening, because all signs pointed to impressive growth momentum in the world’s second-largest-economy.Industrial output rose 13.3 percent year-on-year last month, rebounding from a mild dip in October and outpacing market expectations.
Capital spending also topped forecasts, rising 24.9 percent in the first 11 months of this year from the same period a year earlier.
In an indication that China is slowly continuing its shift to a more consumption-oriented economy, retail sales increased 18.7 percent last month from a year earlier.
The data yesterday, which had been widely leaked to the Chinese market beforehand, followed hefty increases in exports and bank lending that were reported on Friday.
For all the signs of strength, worries center on whether inflation is beginning to slip from Beijing’s grasp.
”Current administrative measures to control inflation can depress prices for a while, but rebounds will take place once the measures are relaxed,” said Lin Songli (林松立), an economist with Guosen Securities (國信證券) in Beijing.
Several Chinese cities have -introduced direct controls to limit food price increases, while the central government has also vowed strong action to eliminate speculation in the country’s commodity markets and punish anyone found to be manipulating food prices.
Food once again was the primary driver of inflation. The cost of food rose 11.7 percent in the year to last month, while non-food prices were up just 1.9 percent. However, within the non-food category, consumer goods and housing costs registered clear jumps.
“My worry for inflation is that we are seeing a very clear trend of non-food prices increasing. This is consistent with very strong wage increases this year, global commodity prices increasing and very strong money and credit expansion,” Shen said.
The National Development and Reform Commission, a powerful central planning agency, was more confident in its outlook.
In a statement after the data was released, it said that last month’s consumer inflation represented a peak and that the annual pace would fall below 5 percent this month. However, it cautioned that prices would remain elevated during the first quarter of next year.