Chinese inflation rises at fastest rate in two years
China said consumer prices rose at their fastest in more than two years in October, raising expectations of another interest rate increase as Beijing admits it may not meet its 2010 inflation target.
CPI has been driven higher by rising food prices and living costs. Photo: AFP
AFP 7:38AM GMT 11 Nov 2010
The consumer price index (CPI) - a key measure of inflation - rose 4.4pc year-on-year last month, compared with 3.6pc in September, the National Bureau of Statistics said. It was the fastest pace since September 2008 - the start of the global financial crisis, when consumer prices rose 4.6pc.
Consumer prices increased 0.7pc month-on-month. The October figure, which outstripped several analysts' predictions, comes as the world's second-largest economy battles to rein in consumer prices and soaring housing costs. Over the first 10 months of the year, the CPI was up 3pc, mainly driven by rising food prices and living costs, NBS spokesman Sheng Laiyun told a news conference.
"Price pressures are increasing. That means pressure on macroeconomic controls is increasing," Mr Sheng said. The October CPI reading marked a "very sharp increase" and persistent upward pressures on prices meant any dip in the coming months would be shallow and short-lived, said Brian Jackson, a senior strategist at Royal Bank of Canada.
"It's obviously eye-catching.... There are some reasons to think it might pull back in the next couple of months but I wouldn't want to bet the house on that," Mr Jackson told AFP. "More rate hikes are clearly on the way, and today's data also reinforces the case for faster currency appreciation," he added in a note. The People's Bank of China last month raised its benchmark one-year lending and deposit rates by 25 basis points each - the first increase in nearly three years.
Late on Wednesday, the central bank tightened liquidity by ordering banks to set aside more reserves for a fourth time this year. New lending in October fell slightly from the previous month to 587.7 billion yuan (£55bn), the central bank said Thursday. "What we are really seeing is stable growth being supported by continued high levels of lending," said Tom Orlik, a Beijing-based economist with Stone and McCarthy Research Associates.
"The real question is when they turn the lending tap off, what happens to the growth? We don't know the answer to that." China's battle to restrain prices comes amid worries that the US Federal Reserve's move to inject $600bn into the American economy could increase speculative "hot" money flows into China and fuel inflation.
"The new round of foreign quantitative easing policy will release enormous liquidity, which will have a rather significant impact on the Chinese economy," Mr Sheng told reporters. The Fed measures were expected to fuel inflation in China, he said, adding: "We will have to make greater efforts in order to reach the full-year inflation target."
Other key data released by the statistics bureau showed the world's second-largest economy displayed signs of slowing last month. Industrial output from China's factories rose 13.1pc on year, slower than September's 13.3pc rise, as Beijing closed highly polluting operators and rationed power to energy-intensive industries.
Fixed asset investment in urban areas, a measure of government spending on infrastructure, rose 24.4pcover the January-October period, slightly slower than the 24.5pc in the first nine months of the year. Retail sales, a key measure of consumer spending, rose 18.6pc on-year. Chinese shares rose in Shanghai after the publication of the data, with metal and coal companies leading the gains amid expectations they would benefit from rising prices, dealers said.
