Home / English Column / Business (new) / Inside View Tools: Save | Print | E-mail | Most Read | Comment
Credit and Trade Spurt Raise Inflation Fears
Adjust font size:

A 2.7-percent rise in consumer price index (CPI) alone may not be enough to prompt policymakers to apply the brakes on prices. But in view of the soaring trade surplus and a stronger-than-expected growth in new loans, the monetary authorities would do well to keep one foot on the brake.

 

After a brief dip from 2.8 percent in December to 2.2 percent in January, China's headline CPI rebounded to a 2.7-percent rise year-on-year last month.

 

The inflation figure in itself is benign since it remains within the 3-percent target the People's Bank of China has set for this year.

 

The average rate for the first two months which can iron out calendar quirks caused by the timing of the Chinese New Year, which fell in January last year but in February this year was even lower, standing at about 2.5 percent.

 

Given that the main driving force behind the current CPI is still the rise in food prices, one can expect inflation to remain low as grain prices are unlikely to keep rising.

 

Both consecutive bumper harvests in recent years and the long-term price level of grains leave little room for further rise in prices.

 

However, China's latest credit figures and trade growth depict a different economic outlook. Despite the authorities' warnings about excess growth in credit, new loans that domestic banks granted in the first two months of this year reached 982 billion yuan, up 37 percent year-on-year.

 

Given China's efforts to balance its trade growth, a huge February trade surplus surprised almost everyone. The near-record surplus of $23.8 billion was about 10 times the amount the previous year.

 

Clearly, it will be a tough challenge for China to both rein in credit growth to curb excessive investment and reduce the ballooning trade imbalance this year.

 

Under such circumstances, the moderate rise in headline CPI also demands close attention from policymakers. The market should brace for further tightening measures if any sign of a spillover from food prices to the broader price rise emerges.

 

(China Daily March 14, 2007)

 

Tools: Save | Print | E-mail | Most Read
Comment
Pet Name
Anonymous
China Archives
Related >>
- February Trade Surplus Up Tenfold
- CPI Climbs 2.7% on Food Prices
Most Viewed >>

Product Directory
China Search
Country Search
Hot Buys