China: Inflation Slows but Still Exceeds Target

May 10th, 2011
in econ_news

 Econintersect:  For the fourth consecutive month China's inflation rate exceeded the government's target.  China's consumer prices rose 5.3% year-over-year in April, less than the 5.4% growth rate in March.  The government has a target of 4% for the annual inflation rate.  The government has taken a number of steps to fight inflation.  These include tightened credit, preventing price increases and allowing the yuan to appreciate in value.  In April alone the yuan appreciated by 0.9%.

Follow up:

Deutsche Bank estimates the yuan may appreciate at an annual rate of 7% to 10% over the next two months, according to Bloomberg.

According to The Telegraph, Brian Coulton, an emerging markets strategist at insurance giant LGIM, indicates that failure to control inflation in China will result in that country "exporting inflation" to the rest of the world.  Just as the west ran into difficulties resulting in financial crisis from excessive risk taking in a shadow banking system, China is also facing difficulties from banks entering into off-balance sheet transactions, LGIM believes.

China also reported that PPI rose 6.8% in April, down from 7.3% in March.  Producer prices can be a leading indicator for consumer prices.  However, the Bloomberg report cites a number of sources that are estimating inflation in China will be significantly lower by yearend.  Of course other experts are predicting higher inflation.   

Sources:  Bloomberg, The Telegraph and Shanghai Daily

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