China’s economic growth and rate of inflation for the first quarter of 2011 were both higher than projected, at 9.7% and 5.4% respectively. From Economic Times:
The first quarter and inflation accelerated in March to the fastest pace since 2008, adding pressure for more monetary tightening. Consumer prices rose 5.4% from a year earlier, the statistics bureau said at a briefing in Beijing on Friday. The median forecasts in Bloomberg News surveys of economists were for growth of 9.4% and inflation of 5.2%
With China’s inflation rates at a 32 month high, analysts expect that the Chinese Central Bank will continue monetary tightening policies. From Forbes blog:
The National Bureau of Statistics reported that China’s consumer prices rose 5.4% in March from a year earlier, the biggest jump since July 2008 and well above the government’s target of 4%.
Initially, stocks rose after the statistics bureau released the news this morning, but market sentiment shifted later over concerns the government is likely to adopt further tightening measures. The Shanghai Composite Index finished 0.3% higher, Hong Kong’s benchmark Hang Seng Indes was little changed and Japan’s Nikkei 225 Stock Average closed 0.7% down.
JP Morgan said, “we now see the likelihood of two more reserve requirement ratio hikes (with the next one likely to come in the coming weeks), and potentially two more interest rate hikes (to narrow the currently negative real interest rate) for the rest of the year, as well as further yuan appreciation (with the year-end dollar/yuan forecast at 6.3), with these policy actions largely front-loaded in the coming months.”
China’s inflation is driven by higher food prices as well as higher demand in general. From BBC:
Rising food prices have been the main cause of inflation. The cost of food was up 11.7% in the year to March. Housing costs have also risen sharply.
Prices have also been driven up by demand. Retail sales in the first quarter of the year were up 16.3% on a year ago.
In another sign of the impact of strong growth, oil demand for February increased by 10.3% on a year ago, driving global oil prices higher.
The Chinese central bank has increased the amount of money Chinese banks need to keep as a reserve in order to limit lending and to try to control inflation.
Analysts are expecting the bank to order further increases alongside possible interest rate rises.
After news of China’s higher inflation rates were released, stocks worldwide decreased in anticipation that the Chinese government would enact measures to slow economic growth. From Bloomberg:
Asian stocks fell, dragging the regional index toward its first loss in four weeks, after Chinareported that inflation in the world’s second-largest economy increased faster than estimated, increasing speculation that the government will need to do more to contain growth.
China Resources Land Ltd. (1109), a state-controlled developer, slid 2 percent in Hong Kong.Belle International Holdings Ltd. (1880), China’s largest retailer of women’s shoes, sank 1 percent. Fanuc Corp. (6954), the robot maker which counts Asia including China as its biggest market for sales, dropped 1.1 percent. Infosys Technologies Ltd. (INFO), India’s second-largest software exporter, tumbled 9.6 percent in Mumbai after posting profit that missed estimates.BHP Billiton Ltd. (BHP), the No. 1 mining company, slid 1 percent after metal prices declined for a fourth day.
