CPI, PPI show growth in December on rising costs

08:14, January 22, 2010      

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The consumer price index (CPI) and the producer price index (PPI) in December both saw higher-than-expected positive growth from the previous year, but the market still generally maintained the forecast that the economy is likely to see mild inflation rather than hyperinflation in 2010.

The CPI rose 1.9 percent from a year earlier in December, showing positive growth for the second consecutive month. The PPI returned to positive territory for the first time since last year to increase by 1.7 percent, Ma Jiantang, head of the National Bureau of Statistics (NBS), announced Thursday.

The increase in CPI is mainly due to a food price hike that contributed 1.74 points to CPI growth, while rising prices of mining and quarrying products and raw materials in total contributed 1.6 points to PPI growth, according to Ma.

The positive figures dispelled fears of deflation last year, while warning of a potential inflation threat, Ma said.

But he believes that the price hike will be mild and controllable, given the overall supply and demand relations in the country and grain harvest over the past six years.

The growth of CPI and PPI is also due to the low baseline figure from late 2008 when the country was hit hard by the crisis, Ma said. The NBS will release month-on-month figures for major economic data in March.

The market has generally predicted an inflation rate around 3 percent this year, echoing Ma's expectations.

The economy is likely to see mild inflation "due to massive overcapacity in the manufacturing sector and rapid growth in labor productivity," Sun Mingchun, Hong Kong-based chief China economist with Nomura Securities, wrote in a research note Thursday.

Benchmark interest rates are not likely to be raised soon. The adjustment of interest rates should not follow too much the short-term trends, such as the December CPI increase which was mostly driven by a food price hike due to bad weather, said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong.

Lu believes a market rumor that an interest rate hike will happen today is not true. He said interest rates are expected to rise once in the second half of the year.

Yan Jin, an economist with Standard Chartered Bank (China), agreed there will be mild inflation, saying that inflationary expectations will add pressure to the central bank. The interest rates will be raised twice in the first quarter and the second quarter respectively, going 0.27 percentage points higher each time, she forecasted.

Lu Zhengwei, a senior economist with the Industrial Bank, warned the strong PPI growth in December is likely to trigger an interest rate hike.

But he said the interest rate hike he expects will be mostly due to the recent unexpected rise in the deposit reserve requirement ratio by 0.5 percentage points Monday on orders of the central bank.

The unexpected policy tightening has led to volatility in the stock market, Lu said. He said the government should convey a much clearer message to stabilize the market.

Source: Global Times
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