China consumer price rise picks up pace

China consumer price rise picks up pace
By Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2010
Published: May 11 2010 05:19 | Last updated: May 11 2010 05:19
http://www.ft.com/cms/s/0/d9b0a424-5cb0-11df-bb38-00144feab49a.html


Consumer prices in China rose 2.8 per cent in April from the same month a year earlier, the fastest pace in 18 months but below Beijing’s full-year target of 3 per cent, data released on Tuesday showed.

Adding to fears of potential overheating, Chinese property prices jumped 12.8 per cent in April from a year earlier, the biggest increase since records began in 2005, although sales volumes have already fallen substantially in many big cities in reaction to a string of government measures to cool the market.

Producer prices rose 6.8 per cent in April, up from March’s 5.9 per cent rise, indicating that consumer prices are likely to increase faster in the coming months.

“Virtually everything is on the rise in China, from wages to grain and vegetables and we expect inflation above 5 per cent by the end of the year,” said Dong Tao, chief regional economist for non-Japan Asia at Credit Suisse. “Inflation will be the biggest worry in the second half of this year and everybody in China except government economists seems to have realised inflation won’t peak in the middle of the year.”

New bank lending in April reached Rmb774bn ($113.3bn), higher than most economists had forecast but less than in the first two months of the year and well below the frantic pace in the first half of last year.

Food prices make up about a third of China’s consumer price index and were the main driver of higher inflation in April, rising 5.9 per cent from a year earlier, while non-food prices rose 1.3 per cent.

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“China is at risk of overheating, with spot fires breaking out in various parts of the economy, most notably in the property market and bank lending,” according to Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong. “We expect Beijing will soon move to hike lending rates and allow moderate currency appreciation against the dollar.”

With the benchmark one-year bank deposit interest rate at 2.25 per cent, Chinese savers are already faced with negative real interest rates, making investments in the booming property market more attractive.

Credit Suisse estimates China’s coastal areas are experiencing a labour shortage of at least 6m workers, with the shortfall now spreading from manufacturing to the service sector and adding to inflationary pressures.

China’s statistics bureau said on Tuesday that the country was facing higher inflation in the near future but insisted the government would probably meet its full-year inflation target of 3 per cent.