China Inflation


Government raises 2011 inflation target as prices continue to soar

Inflation jumped from 4.4% in October to 5.1% in November. The reading marked the fifth consecutive month of accelerating inflation and overshot market expectations of a 4.7% rise. Moreover, the November reading represented the highest level since inflation reached 6.3% in July 2008. As in the previous month, the main drivers behind the increase were higher food prices, which rose 11.7% over November 2009 (October: +10.1% year-on-year). Non-food prices continued to accelerate and rose 1.9% over November last year (October: +1.6% yoy). As a result of the rise in November, annual average inflation jumped from the 2.7% registered in October to 3.1%, the highest level since March 2009. In the same vein, producer prices continued to accelerate over the previous month. In November, the producer price index (PPI) added 6.1% over the same month last year, which was well above October's 5.0% rise and the 5.1% increase expected by market analysts. Higher producer prices typically feed into inflationary pressures, as businesses try to pass on cost increases to consumers, especially when domestic demand remains buoyant. On 15 December, the government announced that it will raise the 2011 annual average inflation target to 4.0%, from 3.0% this year. However, the State Information Centre (SIC), a think-tank attached to the National Development and Reform Commission (NDRC), expects inflation to reach 3.8% in the fourth quarter and to slightly exceed the government's target, but remain "within tolerance of the society". However, a survey by the Central Bank revealed that Chinese consumers are more concerned about inflation now than at any time since 1999, as evidenced by the falling price satisfaction index, which reached a record low this quarter. Consensus Forecast participants expect inflation to average 3.2% in 2010. For 2011, panellists revised their forecasts for a second consecutive month and expect inflation to average 4.0%, which is up 0.6 percentage points from last month's estimate.

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