China Power

China Inflation Climbs 5.3%

China’s inflation data for April again exceeds Premier Wen Jiabao’s 4 percent target for this year.

Figures released today by China’s statistics bureau and central bank showed consumer prices rising 5.3 percent from a year earlier, while banks extended 740 billion yuan ($114 billion) in local-currency loans, Bloomberg reported today.

‘Today’s data showed that inflation has exceeded Premier Wen Jiabao’s 4 percent target each month this year,’ Bloomberg noted. ‘The figures may buttress the case made by US Treasury Secretary Timothy F. Geithner in annual bilateral talks in Washington this week that China needs a stronger yuan to contain prices and spur domestic demand.’

So what do these figures suggest? I asked Alistair Thornton, China analyst at IHS Global Insight, for his take on today’s numbers. In a note following the inflation data he said that output and price information suggested that the Chinese economy was cooling off in April, but added that the slowdown was within expectations, reflecting ‘progressing weakness in final demand as tightening measures start to bite.’

‘A hard-landing scenario is still of low probability as the key real estate construction activity remains robust, boosted by low-income housing construction,’ he said. ‘In addition, April’s industrial production also partly reflects the power supply shock that has hit at least a dozen Chinese regions. Production could rev up again if this shock dissipates.’

According to China's National Bureau of Statistics, industrial value-added output rose 13.4 percent year on year in April, down from 14.8 percent growth in March.

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‘For the first four months of this year industrial value-added output increased 14.2 percent, down 0.2 percentage points from the January-March period,’ the official Xinhua news agency quoted NBS spokesman Sheng Laiyun as saying at a press conference.

But Thornton noted that the pull-back last month, which included a smaller increase in food prices, doesn’t mean the end of inflationary concerns.

‘Whilst monetary tightening is genuinely beginning to bite, liquidity build-up will continue to apply upward pressure through the year, with full-year inflation sure to come in over the 4 percent target,’ he said.