Chinese inflation and housing prices continued to accelerate last month, underlining the difficult judgments the Chinese authorities face as they try to engineer a modest cooling in economic activity.
Consumer price inflation increased to 2.8 per cent in April from 2.4 per cent the month before, its highest level in 18 months although still below the government’s target of 3 per cent. Factory gate inflation jumped to 6.8 per cent from 5.9 per cent.
Adding to the fears of overheating, house prices increased by 12.8 per cent in April from a year earlier, the fastest rate of increase since records began five years ago, although sales volumes in many cities have already slowed dramatically in recent weeks as a result of government policies aimed at discouraging property speculation.
While the government has taken steps to slow the housing market, the authorities have so far avoided raising interest rates or appreciating the currency in order to tighten policy for the broader economy, preferring more modest tools such as lifting bank reserve requirements.
The new data, which also recorded slowdowns in the rate of increase in the money supply and fixed asset investment, prompted different responses from private sector economists.
“Virtually everything is on the rise in China, from wages to grain and vegetables and we expect inflation above 5 per cent by the end of the year,” said Dong Tao at Credit Suisse. “Inflation will be the biggest worry in the second half of this year and everybody in China except government economists seems to have realised inflation won’t peak in the middle of the year.”
Liu Ligang at ANZ in Hong Kong said the April figures “vindicated our views that China’s economy has already overheated.”
However, Ha Jiming at China International Capital Corporation reduced his estimate for 2010 growth from 10.5 per cent to 9.5 per cent on the grounds that property investment would slow, while exports would be weaker than expected because of the fallout from the Greek crisis. More muted growth overseas would also reduce inflation pressures from raw materials costs, he said.
Sheng Laiyun, a spokesman at the National Bureau of Statistics, said that consumer price inflation would be kept below 3 per cent, despite near-term pressures.
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