China’s March Inflation

By John Richardson

THE importance of reliable market intelligence on China was further emphasised on Monday with the release of the March inflation data.

Last week a sales and marketing executive with a polyolefins producer told us: “”Although the overall inflation rate has fallen to 3.2 percent (the February number), this is very misleading as it doesn’t reflect conversations we are holding with our customers.

“If you go to any plastics processor in China they will tell you the same thing – that real inflation is more like 8-9 percent per year as a result of double-digit increases in food prices.”

In March, the overall inflation rate rose to 3.6 percent.

Overall food-related costs were up by 7.5 percent, vegetable prices jumped 20.5 percent and the cost of meat and eggs was 11.3 percent higher.

One of the reasons why food has become much-more expensive is bad weather damaging crops, say economists, and so therefore only temporary.

But if oil prices stay high, this will maintain upward pressure on the cost of food.

And higher wages costs will, without doubt, continue to exert upward pressure on inflation because of the structural changes in the economy. Prices for clothing and shoes rose 3.8 percent in March, a sign of underlying wage pressures, Paul Cavey, a Hong Kong- based economist with Macquarie Securities told Bloomberg. This compares with a 0.8 percent rise in March 2011.

Petrochemical market participants have been hoping for over a month now that more economic stimulus is on the way, as was the case with mono-ethylene glycol (MEG) last week.

But the rise in inflation gives the government less flexibility to cut interest rates and further lower bank-reserve requirements.

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