China’s inflation accelerated to the fastest pace in two years in October, building the case for the central bank to add to last month’s interest-rate increase.
Consumer prices rose 4.4 percent from a year earlier, boosted by food costs, a statistics bureau report showed in Beijing today. That was more than the 4 percent median forecast in a Bloomberg News survey of 28 economists. None forecast such a large gain. In September, prices rose 3.6 percent.
Moody’s Investors Service today upgraded China’s debt rating to Aa3 from A1 in a sign of confidence that policy makers can contain risks and sustain the fastest expansion of any major economy. Deutsche Bank AG said policy makers will be "more aggressive” in raising interest rates after yesterday’s 0.5 percentage point increase in the proportion of deposits that banks must set aside.
"Inflation exceeding 4 percent may increase the odds of another interest-rate increase before the end of this year,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., before today’s release. “Food inflation is not easing as expected.”
Chinese officials are grappling with inflows of money from bets on yuan gains and a trade surplus that surged last month to $27 billion.
Currency Gains
Speculation that the inflation rate would be 4.4 percent drove down stocks yesterday, according to Tu Hai, a strategist at Guoyuan Securities Co. in Shanghai. Credit Suisse Group AG said before today’s data that inflation may exceed 6 percent by the middle of next year.
The government may delay increasing prices for power, gas, water, oil and public transport, ratchet up reserve requirements, and accelerate yuan gains, Ma Jun, a Hong Kong-based economist at Deutsche Bank, said after yesterday’s reserve-ratio increase.
The Chinese currency, to feature at a Group of 20 summit in Seoul where Presidents Barack Obama and Hu Jintao will meet today, has gained about 2.9 percent against the dollar this year, compared with the yen’s surge of more than 12 percent. The yuan closed yesterday at 6.6337 per dollar after rising to the highest since 1993.
China’s new local-currency lending was 587.7 billion yuan ($89 billion) last month, a report from the central bank showed today, more than the median 450 billion yuan forecast in a Bloomberg News survey of 25 economists. M2, the broadest measure of money supply, rose 19.3 percent from a year earlier, the central bank said.
Industrial Production
China’s industrial output rose 13.1 percent last month from a year earlier, today’s report showed, as the government limited power use by heavy industries to meet a year-end energy efficiency target. That compared with a 13.3 percent gain in September and economists’ 13.4 percent median estimate.
Urban fixed-asset investment rose 24.4 percent in the first 10 months of 2010 from a year earlier, matching analysts’ median estimate. Retail sales gained 18.6 percent in October.
Producer prices rose at an annual 5 percent pace last month, the statistics bureau said. That compares with economists’ 4.5 percent median estimate and a 4.3 percent increase in September. Baoshan Iron & Steel Co., the nation’s biggest publicly traded steelmaker, reported its smallest quarterly profit this year in the July-to-September period, partly due to rising costs.
Missing Target
The latest reserve-ratio increase came after the nation’s top economic planner said this week that the government may miss its full-year inflation target of 3 percent. Zhang Ping cited “imported inflation” as excessive global liquidity and a weaker dollar push up commodity costs, and higher food costs due to bad weather and speculation.
In October, the benchmark one-year lending rate rose to 5.56 percent in the first increase since cuts to counter the financial crisis. The central bank also increased reserve requirements for six banks for two months, people familiar with the matter said then. In the first half of the year, ratios for all banks rose three times.
Monetary easing by the U.S. Federal Reserve may send money flowing into emerging markets including China, another topic that may feature at the G-20 talks, where leaders aim to tackle global economic imbalances.
The People’s Bank of China said last week that it aims to return monetary conditions to “normal” and Zhang Jianhua, the head of the bank’s research bureau, said Nov. 4 that the moderately loose stance adopted for the financial crisis has completed its “mission.”
Besides consumer-price gains, the government faces asset- bubble risks. Property prices rose 8.6 percent in October from a year earlier, a statistics bureau report showed yesterday. Year- on-year increases have slowed as the government cracks down on speculation by tightening lending.
