China Inflation


Inflation jumps to two-year high in October

Inflation rose from 3.6% in September to 4.4% in October. The reading marked the fourth consecutive month of accelerating inflation and overshot market expectations of a 4.0% rise. Furthermore, the October reading represented the highest level in more than two years. Although the main drivers behind the October increase were higher food prices (September: +8.0% year-on-year; October: +10.1% yoy), non-food prices also surprised on the upside, rising 1.6% yoy (September: +1.4% yoy). As a result of the October figure, annual average inflation jumped from the 2.3% registered in September to 2.7%, the highest level since April 2009. In the same vein, producer prices accelerated over the previous month. In October, the producer price index (PPI) added 5.0% over the same month last year, which was above September's 4.3% rise and the 4.5% increase expected by market analysts. Going forward, higher producer prices may feed into inflationary pressures in consumer prices, as business are likely to pass on most cost increases to consumers in a climate of resilient domestic demand. The government currently maintains a 3.0% annual average inflation target for this year. However, the State Information Centre (SIC), a think-tank attached to the National Development and Reform Commission (NDRC), expects inflation reach 3.8% in the fourth quarter and to slightly exceed the government's target, but to remain "within tolerance of the society". Consensus Forecast participants expect inflation to average 3.1% in 2010, which is unchanged from last month's estimate. For 2011, the panel expects inflation to accelerate further to 3.3%.

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