The Yuan rose about 5.5% over the last 12 months..
Posted on 09/10/2007 11:29:30 PM PDT by bruinbirdman
Soaring food prices propelled China’s annual consumer price inflation to 6.5 per cent in August, the fastest pace in nearly 11 years, cementing expectations the central bank will defy the global trend and keep raising interest rates.
The inflation rate published on Tuesday, up from 5.6 per cent in July, easily surpassed economists’ forecasts of 5.9 per cent and was the highest reading since December 1996.
”Going forward we believe there are non-trivial risks that inflation may continue to edge up. We expect the central bank to respond to higher inflationary pressures with decisive tightening measures, including two interest rate hikes to the benchmark lending and deposit rates by the end of this year,” economists at Goldman Sachs said in a note to clients.
China’s ruling Communist Party, aware that inflation has touched off unrest in China down the ages, has voiced increasing concern about the speed of price rises.
A senior party researcher warned in an article published on Monday that inflation becomes increasingly difficult to control once it exceeds 5 per cent.
The National Bureau of Statistics said inflation was driven by an 18.2 per cent leap in the cost of food, which accounts for a third of the consumer price basket.
Meat prices rose 49.0 per cent in August from a year earlier, reflecting a shortage of pork, China’s staple meat.
China’s pig population has fallen 10 per cent due to blue-ear disease and reduced incentives to rear hogs, including fast-rising feedgrain costs and low prices last year.
China, the world’s biggest producer and consumer of pork, could quadruple its imports of the meat this year to 100,000 tonnes to alleviate the shortage, according to a Ministry of Commerce spokesman quoted by Xinhua news agency.
The government has already introduced a raft of incentives to increase the supply of pork. In one downtown Beijing alley on Tuesday, the inducements seemed to be working: a woman was taking an oinking piglet, and her dog, for an early-morning walk.
Most economists accept that a central bank can do little about supply shocks such as a shortage of pigs; non-food prices, moreover, rose just 0.9 per cent in August from a year earlier.
But the People’s Bank of China has voiced worries that inflation will start rippling through the economy as people start to expect prices to keep rising and demand higher wages.
”The risk is that if the economy continues to grow very rapidly, this inflation, which looks concentrated in food, starts spreading and influencing inflationary expectations,” said Rob Subbaraman, chief Asia economist for Lehman Brothers in Hong Kong.
But if people do respond to higher prices by rearing more pigs, food prices could start to fall sharply at a time when weaker U.S. growth might be sapping Chinese exports, he said.
”That could unmask severe oversupply in China’s industrial sector, which could lead to a flip from concern about inflation to worries about deflation. So you don’t want to overtighten,” Subbaraman added.
To keep a lid on inflation and prevent the world’s fourth-largest economy from overheating, the central bank has raised interest rates four times this year and ordered banks on seven occasions to tie up more of their deposits in reserve.
Li Mingliang, an analyst with Haitong Securities in Shanghai, expects inflation to accelerate in September, triggering another rate rise in October.
Food oil cost 34.6 per cent more in August than a year earlier, eggs were up 23.6 per cent and vegetables 22.5 per cent.
It is the rising cost of such everyday goods that has people grumbling and China’s leaders worried. Inflation was an important ingredient in the unrest that led to the 1989 Tiananmen Square pro-democracy protests that were crushed by troops.
Zhao Qingming, an economist with China Construction Bank in Beijing, said the near-term outlook for inflation could depend on the autumn harvest.
”It seems China will have a bad harvest this year because of droughts and other disasters, and that will push up food prices further,” he said.
...and nothing about the yuan. That’s interesting.
Thanks for posting this.. it adds further evidence to my thinking that inflation isn’t under control globally. And this is a global economy.. rising prices in China will get here eventually. The Chinese government will looks like have to keep raising interest rates, and hopefully continue raising the reserve requirement, as imo is a good idea.
Its interesting to note that they include food in their calculation while we do not. The Chinese will likely also try mechanisms to lower the price of food, to buffer the affects on their poor masses. And so there isn’t so much pressure to raise.
I think folks here in North America and also in Europe are too optimistic that we are going to see lots of rate cuts going forward.
Are the ChiComs printing too many yawns or renminbis?
Do Red Chinese in rural areas buy rice with yawns or renminbis? One greenback buys about 7.54 yawns. How many renminbis in a yawn?
yitbos
The Yuan rose about 5.5% over the last 12 months..
The Yuan probably figures in the Hsu DNC Hillary Clinton $850,000.00 story. They’re not talking about Yuan that much there either though. Heh heh heh...
The chart appears to show the yawn floating, down. Yet it is pegged to the buck. If the greenback falls, how can the yawn rise?
yitbos
As I understand it, the renminbi is the Chinese yuan as discerned from the new Taiwan dollar.
I don’t know whether making too many of them would keep the currency down on the world market. But my uneducated guess is that if Chinese workers have to pay more for their products, so will American importers, eventually. It appears that the dollar must fall.
And as more workers become active in new production in China and other countries, more of them will be commuting. It doesn’t look like oil will go down in the long term.
Yours,
familyop, AKA Captain Obvious, the uneducated macro-macro-macro economist (’cause it’s so easy. ...too bad that it doesn’t pay)
Thank you.
1.00 CNY (China yuan renminbi) = 0.13295 USD
at ~ 3:29 AM ET (Reuters)
http://today.reuters.com/Investing/Currencies.aspx
In 2005 the Chinese broke the absolute peg with the dollar which was at 8.28 yuan per dollar. But they made it so the Yuan could only move .1% up or down each trading day. Then later they made it so the Yuan could move .3% up or down each day. And they may have made an additional loosening of controls since then.
I like how China gradually makes changes, ending at the eventual goal.. without one chaotic leap with disastrous impact.
“I like how China gradually makes changes, ending at the eventual goal.. without one chaotic leap with disastrous impact.”
A freedom of movement much easier when your every fiscal move doesn’t prompt harmful-to-you hysteria.
But I did say "about".
yitbos
LOL! We rural macro-macro-macro economists only reckon in the master-of-the-universe way. [IOW, all those digits made my Dukes-of-Hazard head hurt.]
Mao's Cultural Revolution showed them that big changes, even popular ones that sound good, can be traumatic if the occur too quickly. That's how the CCP can get away with promising slow advances for social freedoms... and even then, only after the economic freedoms have been "sufficiently advanced". In reality, this means the obvious: that the CCP will allow those freeedoms only when the population screams for them and the CCP is actually threatened... and while everyone is either enjoying the new wealth or trying to get in on the action, they aren't likely to complain too much about free speech (etc) that they've never known anyway.
Exactly. I can see the higher prices right now (I'm in Shanghai at the moment), and inflation is higher than in the US. However, their economy is growing even faster.
A GDP growth of 3% with a 2% inflation rate is much worse than a GDP growth of 10% with a 5% inflation rate.
China's economy is nearly as free-market as the US at this point, and you see a lot of pressures to open up the other aspects of life. China's opened Pandora's box of capitalism, and right now I get the feeling the leaders here aren't so much fighting the loss of a communist society as trying to manage the change to a socialist (think Germany or France style) government with the least harm to the country.
The Chinese, for anything else, are highly pragmatic people. The writing's on the wall that a free market and open society are the only ways they will grow in terms of international power and position, and so the problem is how to transition there with the least disruption to the day-to-day realities.
TIC - This Is China.
We will wake up one morning to discover that the US govt has drastically devalued the dollar overnight. That is how it usually happens to a banana republic.
BUMP
In China right now, it’s the bottom of the income scale that’s heavily gaining in income. Minimum wage requirements in Guangdong province (where 20% of China’s exports are made) are up - again. Up 20% over the last year. That’s one of the reasons a small shortage in pork creates such a spike now, unlike 6-8 years ago; so many of the working class can now afford pork on a daily basis that demand has greatly grown.
And these labor laws are strictly enforced; one factory I work with over here was audited, forced to pay back wages, and fined double the total of back wages. It’s not the US or the EU, but it’s a lot better than it was 10 years ago, and better than Mexico, India, South America (save for Chile), and other places with heavy exports.
The richest in China are doing fabulously, and you can still live like a king of $3000/month. But the lower rungs are quickly climbing, evidenced by sudden jumps in food prices and housing costs, because they can afford these items. In fact, labor costs have increased so much that some companies are pulling out and moving operations to Vietnam and Cambodia, with even lower labor costs.
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