July 6, 2008
CPI inflation in China: Forecasts above 7 per cent for June 2008
The June CPI inflation rate for China will be published officially on 18 July 2008. Bank of China reportedly estimates that the published rate would be between 7.1 and 7.4 per cent, thus further cementing a yearly 2008 inflation rate above 7 per cent. So says also the latest forecast of the Chinese Academy of Social Sciences (CASS), which published a report this month forecasting about 7 per cent for 2008.
Still, Zhou Xiaochuan, the governor of the PBC, mentioned at a conference of the Bank for International Settlements in Basel, Switzerland, that inflation is likely to fall in summer. For him, inflation would ease in summer because “we’ve got a good harvest, and some supply policies have started bearing results.” Having in mind that other global forces are driving up prices, such as energy and other commodities, this statement has to be treated with caution.
However, a stabilization of rates around 7 per cent would be a good first step. towards lower inflation rates. Following May, June would be the second month of below 8 per cent if current predictions hold. But the drop of the rate from 8.5 per cent in April to now 7.1 per cent should also be seen on the backdrop of the high inflation rate in June 2007. June was the first month that showed higher than 4 per cent inflation last year.
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Posted by mgeiger
June 28, 2008
Concern over inflation fuel expectation to raise interest rates
After the pulication of the May 2008 inflation rate earlier this month, which was at 7.7 per cent, expectations to raise interest rates gained momentum towards the end of June. The rumours said that a increase in the interest rates was imminent, possibly over the weekend 28-29 June. While it is difficult to say where this information comes from, it had great impact on markets in the last days: China Daily headlined on 28 June “Shares plummet amid fear of interest rate hike” while Bloomberg wrote on 26 June “China’s Bonds fall on speculation central bank to raise rates“.
Michael Pettis of ChinaStakes.com provides an excellent analysis of the current situation: “If rumors of further interest rate increases can cause so much damage to the stock markets (and, I suppose, to the real estate markets), I am very skeptical about the ability of the PBoC to get approval actually to raise them further, as Governor Zhou seems to hope and has implied in recent comments. This may be a dangerous prediction to make, given all the rumors of an interest rate hike over the weekend, but I doubt the government has much appetite for further sharp declines in stock and real estate prices, especially so close to the Olympics.” He is right! Certainly, there are other instruments of monetary policy in China - such as window guidance! But pro-growth considerations should not rule out to use the full monetary policy tool box at hand to fight inflation.
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Posted by mgeiger