China Inflation


Inflation exceeds target in 2010

In December, consumer prices rose 4.6% over the same month the year before, down from the 28-month high of 5.1% tallied in November and in line with market expectations. Although the December moderation was expected, analysts still consider that prices are rising too fast and highlighted that a favourable base effect helped to smooth the December data. Moreover, annual average inflation reached 3.3% in 2010, surpassing the 3.0% target set by the government. As in the previous months, the main drivers behind the increase were higher food prices, which increased 9.6% over December 2009 (November: +11.7% year-on-year). Higher non-food prices also added to the pronounced inflation reading, rising 2.1% over December last year (November: +1.9% yoy). Housing costs and prices for health care and personal articles also increased markedly, rising 6.0% and 4.0% yoy respectively. Producer price inflation moderated somewhat over the previous month. In December, the producer price index (PPI) added 5.9% over the same month last year, slightly below November's 6.1% rise, but above the 5.7% increase expected by market analysts. Higher producer prices typically feed into inflationary pressures, as businesses try to pass on cost increases to consumers, especially in an environment of resilient domestic demand. On 15 December, the government decided to raise the 2011 annual average inflation target to 4.0%, from the 3.0% goal for 2010. After full-year inflation data was released on 20 January, the National Bureau of Statistics (NBS) stated that the government will adopt a ?prudent? monetary policy this year, pledging that the price level will be under control during 2011.

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