International | Mar 11 2010
By Greg Peel
China released its latest round of monthly economic data this afternoon. However, given the New Year holiday break which falls sometime in the January-February period (depending on the lunar calendar) each year, the government and economists prefer to consider a full two month's of data to be more accurate a gauge than each of the two individual months when comparing year-on-year.
Industrial production grew 20.7% in the period. Fixed-asset investment grew 26.6% and retail sales grew 17.9% (including 22.1% in February). These are familiar sorts of numbers. Yesterday, however, it was noted that export growth has caught back up to import growth.
So the number everyone was really waiting for was the consumer price index measure of inflation. Last weekend premier Wen Jiabao stated his government's desire to keep CPI growth contained at no more than 3%. In this case the numbers are broken up into 1.5% growth in January, which we already knew, and 2.7% growth in February. Economists were expecting 2.5%.
Thus inflation is rising in China faster than economists had feared. Producer price inflation – which can often provide a hint as to what's around the corner in the CPI – rose from 4.3% in January to 5.4% in February.
It is no stretch of the imagination to assume that rising commodity prices, particularly soaring spot iron ore prices, have contributed to inflation acceleration.
It is also fair to assume from these data that the first Chinese interest rate rise since December 2007 is very much on the cards now, sooner rather than later. Currency revaluation against the US dollar will follow. Both will be necessary to prevent CPI inflation breaking above 3%, and that's before one also considers Beijing's strong desire to prevent an overblown and dangerous property bubble.
China's fourth quarter GDP registered 10.7% growth and last week Premier Wen stated a desire to average only 8% growth in 2010, which is a significantly lower level. To do so he must begin reining in fiscal stimulus and also redirecting stimulus away from property speculation in particular.
So there is no need to assume any change of policy as a result of today's data, just a tick up in urgency.