China's central bank warns of rising prices in 2011
2010-10-28 12:31:24
The People's Bank of China, the central bank, released its third quarter analysis of China's macro-economy on Oct.27, which warned that the pressure of price hikes should not be underestimated.
The slower economic growth and the back-to-normal pace of liquidity growth could help stabilize the expectation of future prices. However, rising grain prices, the further reform of the resources pricing system, and uncertainties about commodity prices on the international market all combine to add upward pressure on China's prices, according to the report.
Specifically, the central bank gives four factors that will probably drive the prices up in the months to come. First, major economies in the world will continue or even strengthen their quantitative expansive monetary policy. Commodity prices are rebounding robustly on the international market, with the CRB Spot Indices exceeding the highest level recorded before the financial crisis.
Second, we are still in an environment of easy monetary and credit supply. The growth of China's M1, which refers to cash in circulation and all deposits held by residents and enterprises, hovered around 30 percent from September 2009 till May 2010. Given that, the effect of the high credit increase in that period will still be felt for some time in the future. The stark growth of M2, an indicator of demand and possible inflation, has finally returned to normal, but it is still apparently much higher than the average growth of 16.3 percent in 2008.
Third, grain prices are very likely to go up next year despite the good harvest expected this year. More demand from industries and the impact of the rising international grain prices on expectation for the domestic market can both contribute to that.
Fourth, the reform of income distribution and the resource pricing system may also contribute to fuel the price hikes in 2011.