Inflation in China, the world's fastest-growing
major economy, probably breached the central bank's target ceiling for a second
month as food costs soared, adding pressure on the central bank to raise
Consumer prices gained 3.1 percent in April from a year earlier, according to
the median estimate of 17 economists in a Bloomberg News survey, after jumping
3.3 percent in March. The statistics bureau will release the figures at 10 a.m.
on May 14.
The central bank, seeking to cap price gains under 3 percent, may also be
concerned that interest rates below the inflation rate will fuel stock-market
speculation that propelled the CSI 300 stock index up 82 percent this year. With
the benchmark one-year deposit rate in China at 2.79 percent, Chinese households
are losing money on savings held at banks.
"Negative real interest rates are fueling excessive exuberance" in the stock
market, said Liang Hong, an economist at Goldman Sachs Group in Hong Kong. "If
left unchecked, asset inflation may soon advance into treacherous territory."
Liang expects the central bank to raise interest rates three more times this
Among Chinese 20,000 households surveyed in February, a record high of 30.3
percent said they intend to invest their money on stocks and funds, according to
the central bank.
M2, the broadest measure of money supply in China,
probably expanded 17 percent from a year earlier, according to the Bloomberg
News survey. The central bank may release the figures as early as Friday.
The producer price inflation quickened to 2.9 percent in April from 2.7
percent in March, the National Bureau of Statistics said on Friday. Producer
prices in the first four months also rose 2.9 percent from a year earlier.
The People's Bank of China on April 29 ordered banks to set aside more money
as reserves for the seventh time in 11 months to try to absorb money pumped into
the economy by the export boom. It has raised interest rates twice in the past
year and sold bills to drain cash from the financial system. China's trade
surplus nearly doubled in the first quarter to $46.4 billion.
"With the huge liquidity and negative deposit rates, there is increasing
concern that the asset bubble is building up faster and faster," said Wang Qian,
an economist at JPMorgan Chase & Co. in Hong Kong. "The central bank should
at least bring rates back to positive level."
Food costs in China account for a third of the consumer price index. They are
rising as farmland shrinks and a growing and richer population adds to demand.
Wholesale prices of agricultural goods in China soared 7.8 percent in March
from a year earlier, according to the central bank. The government has sold
grains in auctions and subsidized farmers to boost supply of food in the world's
most populous country of 1.3 billion people.
Arable land in China has been shrinking since 1997 as economic growth that
averaged 9 percent a year demands more space for industrial development. Area
available for growing crops fell to 303 million acres in 2004 from 321 million
acres in 1996, according to the Ministry of Agriculture.
At the same time, China's population is growing at a
rate of 8 million to 10 million every year, according to the National Population
and Family Planning Commission.