ECONOMIC SIGNALS-China inflation on the rise, but nears peak

BEIJING, Dec 9 (BestGrowthStock) – Salvation from inflation lies
just over the horizon for China.

Market attention is focused on the next batch of inflation
data, which is due on Saturday and is sure to show that
consumer prices rose last month at the fastest annual pace in
more than two years.

As this first chart demonstrates, agricultural price
indexes from the commerce and agriculture ministries have been
good predictors of food price inflation, which in turn has
been the main driver of Chinese inflation.

Both indexes rose in annual terms in November. Inflation
will have followed. Economists polled by Reuters forecast that
headline consumer prices rose 4.7 percent from a year earlier
to a 27-month high.

But a closer look at the two official food indexes in the
above chart reveals a very different picture. Both reached
peaks in the middle of last month. While prices remain
elevated, the pressure appears to have diminished, at least in
the short term.

Monetary tightening — especially, higher reserve
requirements and restrictions on bank lending — has no doubt
helped. Chinese officials will also cite their administrative
efforts to stamp out commodity speculation and control prices.

An equally important factor is base effect. Food prices
began to pick up about last year at this time. Barring a
supply shock, the higher base of comparison should pave the
way for a sustained, if gradual, slowdown in Chinese inflation.

That could reduce the need for interest rate increases.
While rates are certainly going to go higher, Beijing may try
to get away without an aggressive course of tightening.
(Reporting by Simon Rabinovitch; Editing by Neil Fullick)

ECONOMIC SIGNALS-China inflation on the rise, but nears peak