Concerns about inflation in China rise


By Sabine Vollmer

Data due out this week could tell if China’s growing economy, which slowed in the fourth quarter, continued to downshift in March.

The Chinese Customs General Administration is scheduled to release data today on the merchandise trade balance. In February, the country’s trade balance swung to a seasonally adjusted deficit of $19.34 billion, reflecting a weak global economy and an import surge. Exports had fuelled double-digit growth of the Chinese economy in recent years.

On Thursday, the Chinese government is scheduled to report GDP and industrial production. In the fourth quarter, China’s GDP growth slowed to an annual rate of 9.2% from 10.4% in 2010. And in January and February, industrial production increased less than in the same period a year earlier, missing expectations.

The data will come out at a time when China’s central bank is trying to boost domestic consumption and control inflation to help achieve an economic soft landing. But rising commodity prices are threatening to push up inflation, which dropped to an annual rate of 3.2% in February, a 20-month low. In March, global food prices rose for a third straight month, and fears of a shrinking oil supply have pushed the price of oil higher.

“That’s put huge pressure on inflation,” Chen Li, head of China equity strategy at UBS AG, told Bloomberg.

The drop in the inflation rate had provided the Chinese government with some breathing room to focus on stimulating a cooling economic boom. 

Exports fuelled double-digit growth of the Chinese economy in past years. But a weak global economy lowered demand for goods made in China. In January and February, industrial production increased less than in the same period a year earlier, coming in below expectations. Decelerations in the production of steel and cement were particularly notable.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.

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