China’s CPI Hits Highest Rate in Two Years

Posted by Reading Time: < 1 minute

Nov. 11 – Beating expectations, China’s October consumer price index indicated that price levels grew by 4.4 percent, the highest rate in two years, which may lead to further tightening of monetary-policy, China’s central bank said on Thursday.

The increase is partially fueled by a 10.1 percent rise in food prices, but it also comes amid concerns that the U.S. Federal Reserve’s latest round of monetary loosening could add to China’s inflationary pressures. Many Chinese officials have come out against the Fed’s move, saying that it will boost global commodity prices and bid up Chinese and other Asian equities, potentially driving up inflation and creating asset bubbles in emerging economies.

Zhou Wangjun, a vice director of the price department of the National Development and Reform Commission, said Wednesday that China’s CPI will rise by slightly more than 3 percent for the year, but added that the government has sufficient commodity reserves and other tools to stymie a rise in inflation.

Reflecting inflationary fears, China’s central bank said Wednesday that it would raise the reserve requirement ratio by 50 basis points from Tuesday.

The mainland’s producer price index grew 5 percent during the month, also beating estimates that projected a 4.6 percent rise. Data released shows that retail sales jumped 18.6 percent and industrial output increased by 13.1 in October, while urban fixed asset investments rose 24.4 percent in the 10 months to October. Economists estimated retail sales would rise 18.8 percent, industrial production by 13.4 percent, and January-October urban FAI by 24.4 percent.

“Inflation now replaces asset bubble as the top concern for policy makers as well as investors. Beijing’s policy focus is quickly shifting to curbing inflation and containing capital inflows,” Bank of America Merrill Lynch economist Ting Lu said in a research note.