China to Continue Tightening Monetary Policies on High Inflation

SHANGHAI, Mar. 11 (SMM) -- According to data from China’s National Bureau of Statistics, China’s CPI in February rose by 4.9% YoY, a signal of heavy price rising pressures, which will likely prompt Chinese government to introduce more macro control policies in the near term.

China CPI and PPI Remain High in February
According to data from the National Bureau of Statistics, the February consumer price index was up 4.9% YoY and 1.2% MoM, with the YoY growth flat from January: CPI up 4.8% in urban areas, and up 5.5% in rural areas; food prices up 11.0%, and non-food goods prices up 2.3%; consumer goods prices up 5.4%, and service prices up 3.8%. In addition to the Chinese New Year holiday and extreme cold weather, higher imported raw material prices were also an important reason behind growing industrial products prices. Ex-works prices of producers in February rose by 7.2% YoY, with the growth up 0.6 percentage points from January; producers’ purchase prices rose by 10.4% YoY. Among which, purchase prices for non-ferrous metals materials up 14.8%, and fuels up 8.9%, and chemical raw materials up 11.9%, and ferrous metals materials up 15.8%. During January and February, producers’ purchase price rose by 10.0% YoY. In General, consumer prices, upstream producers’ ex-works prices, as well as purchase prices for non-ferrous metals, iron ores, crude oil etc. are constantly rising, which will lead to exacerbated inflation.

Chinese Government Aims at Stabilizing Goods Price
China’s goods prices continued to rise since late 2009. China’s CPI was up 3.3% YoY during 2010, an increase higher than the government’s target ceiling level, which was attributed to natural disasters and imported inflation, and a signal that China’s price regulation has failed. China’s CPI during January 2011 rose by 4.9% YoY, up 1% MoM, and the PPI in January was up 6.6% YoY, and the figure was up 7.2% YoY in February. Premier Wen Jiabao presented at the current NPC and CPPCC that the government should put in the first place of stabilizing goods prices during 2011, a signal that stabilizing consumer prices has become the key point in macro policies. Although the government set the inflation target for 2011 within 4%, increases of goods prices during January and February were still above 4.9%, which were higher than the government target ceiling level. Goods prices are expected to remain at high levels in 1H 2011 given current higher prices of commodities such as energy, iron ore and nonferrous metals, and inflation will likely exacerbate. In this scenario, Chinese government may take further regulation measures, and China’s central bank will likely raise the interest rate again.

Base Metal Prices May Fall in Near Future
Base metals prices remain high despite of significant declines in early March, and SMM predicts base metals prices will likely move lower in the near future in view of the unrest in Middle East, soaring energy prices, and expectations of tightening monetary policies triggered by China’s inflation data in February.

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