Chinese inflation to grow further, correction expected in Q4

11 June 2010 09:20  [Source: ICIS news]

GUANGZHOU (ICIS news)--Chinese inflation is likely to rise further through the second half of the year but was expected to cool down in the fourth quarter of 2010 as growth in factory output and capital spending eases, analysts said on Friday.

Economic data in May showed that while factory output slowed in the world’s second largest economy, it was accompanied by a strong surge in inflation.

China’s consumer price index, the main gauge of inflation, rose to 3.1% in May compared with the same month last year, the National Bureau of Statistics (NBS) said.

The rise in inflation overtook the Chinese government’s target of 3% for the year. Fixed asset investments in the January-May period of 2010 also rose 25.9%, the NBS said.

The country’s producer price index (PPI), a gauge of prices at the factory and farm gate, also grew faster at 7.1% in May.

Industrial output from the country's millions of factories rose 16.5% in May, slower than the 17.8% increase in April, the NBS said.

In April, CPI was up to 2.8% year on year, while PPI was up 6.8%.

“The data wipe out worries on overheating and we expect, with further controls on property bubbles, both investments and production would slow down to a more reasonable level in the second half of this year,” said Wang Hu, chief analyst at Shanghai-based Guotai Junan Securities (GTJA).

Factory output was expected to grow by around 25% in 2010 from a year earlier, Hu said.

“We expect that CPI would continue accelerate and peak in September or October at 3.8% before falling back,” he said.

“For PPI, we estimate that the peak point has already appeared and it would decrease from June till the end of this year to be zero at that time with commodities prices staying soft,” Hu added.

China’s purchase prices of raw chemicals, meanwhile, increased 7.8% year on year in May, according to the NBS.

Petrochemical consumption would increase along with overall recovery in the economy, but prices may largely stay stable or soft in the rest of this year with crude prices likely to hover at nearby $70/bbl (€58/bbl), analysts said.

With additional reporting by Nurluqman Suratman

($1= €0.83)

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