China's inflation 'reversible' but 'warning signal'
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A Merrill Lynch economist said on Tuesday that China's inflation is reversible but clearly sending a warning signal to avoiding over-heating risk.
"Most inflation so far we see in China is food, which is reversible to get better crops next season," Ethan Harris, head of the Developed Economics Research in Bank of America Merrill Lynch Global Research, told a press conference.
"However, it was clearly a warning signal here that we need ongoing tightening policy even as the Fed and ECB (European Central Bank) sit here on hold," he added.
Regarding the cause and impact of China's inflation, Alberto Ades, co-head of Global Emerging Markets Fixed Income Strategy and Economics of Bank of America Merrill Lynch Global Research, said it was mostly driven by food and vegetables.
"We still see it will last for the next few months," Ades said. "China's central bank has raised banks' required reserve ratio to tackle inflation, that's the right thing to do."
After China's most recent CPI reached 5.1 percent, the highest level in 27 month, China's central bank decided to raise commercial banks' RRR(required reserve ratio) by 0.5 percent, the third time in a month.
"I don't think it's necessarily bad thing that china tightening monetary policy," said Harris.
"Although tightening policy in China might lead to some slowdown, but not significant," said Ades. "We have growth in china this year at 10.3 percent. We will see china's growth slow to 9.1 percent next year."
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