China Consumers Signal Deepest Inflation Concern Since 1999 in PBOC Survey

Chinese consumers are more concerned about rising prices than at any time in the past decade, underscoring the pressure on policy makers to step up efforts to counter inflation running at a two-year high.

A price satisfaction index fell to 13.8 this quarter, the lowest level since data began in the fourth quarter of 1999, the central bank said on its website today.

Authorities have held off on adding to October’s interest- rate increase, instead ratcheting up banks’ reserve requirements and using tools such as sales of food reserves to tackle inflation. The Commerce Ministry said today it will “closely monitor” prices over the next quarter, especially during holiday periods, and keep releasing stores of pork and sugar.

“Interest-rate normalization is the best option,” Yao Wei, an economist at Societe Generale SA, said in Hong Kong today. Inflation is “eroding purchasing power” and encouraging consumers to shift savings into assets such as stocks, she said.

The benchmark one-year deposit rate is currently 2.5 percent and the lending rate is 5.56 percent after October’s quarter-point increases.

The Shanghai Composite Index of stocks closed 0.5 percent lower, the first decline in four days, on concern that accelerating inflation will spur more monetary tightening.

Wealth Gap

China needs to “urgently” stabilize prices to safeguard people’s standards of living, the National Development and Reform Commission, the nation’s top planning agency, said on its website today after a meeting in Beijing of regional price- bureau heads.

The ruling Communist Party aims to prevent rising prices and a widening gap between rich and poor from leading to public discontent and unrest.

November’s 5.1 percent annual gain in consumer prices was the biggest in 28 months, with food costs climbing 11.7 percent, also the most since July 2008.

“There is a wide belief in China that real CPI inflation is higher than the data has indicated,” said Shen Jianguang, chief China economist at Mizuho Securities Asia Ltd. in Hong Kong. “Low-income people feel strongly about it.”

In total, 74 percent of households considered prices too high, up 15.6 percentage points from the third quarter, the central bank said. Its fourth-quarter survey was of 20,000 households in 50 cities.

Price Controls

Inflation expectations are “intensifying,” the central bank said, with 61 percent expecting price gains in the next quarter. In the previous survey, the proportion was 46 percent.

The government has pledged to use price controls on daily necessities where necessary. Such measures are in force in the southern city of Kunming, where retailers such as Wal-Mart Stores Inc. and Carrefour SA have been told to report any planned price rises.

More than 80 million people may need food aid over the winter and spring after natural disasters, the government said last month.

Inflows of capital may hamper government efforts to cool prices for consumer goods and in the property market by adding to liquidity. Foreign direct investment in China rose 38 percent in November from a year earlier, to $9.7 billion, the Ministry of Commerce said in a statement in Beijing today.

Asset Markets

The central-bank survey indicated that accelerating inflation may encourage people to switch money to property and stocks from savings accounts, hampering efforts to avert asset bubbles in real estate in some cities. Of those surveyed, 45 percent preferred to put money into investment, up from 39 percent in the third quarter. The proportion keen on saving fell.

Premier Wen Jiabao’s government pledged to do more to stabilize prices after an economic planning conference ended in Beijing on Dec. 12.

China has set a 4 percent inflation target for next year, state television reported yesterday, citing the National Development and Reform Commission.

In the central bank survey, 76 percent of households said property prices were unacceptably high. That was the largest proportion since the question was first included, in the first quarter of 2009.

The high cost of housing in China is widening the wealth gap, Li Shenming, deputy head of the Chinese Academy of Social Sciences said in Beijing on Dec. 8. China’s Gini coefficient, a measure of inequality, reached 0.47 in 2009, exceeding the 0.4 mark used as a predictor for social unrest, according to World Bank data.

Meantime, an indicator of China’s economic outlook rose for a sixth month in October, climbing 0.9 percent to 152.1, the New York-based Conference Board said on its website today.

A measure of lenders’ confidence fell in the fourth quarter to the lowest level in a year, another central bank survey showed today. About half of financial institution executives expect a tighter monetary policy in the next quarter, according to the poll.

--Sophie Leung, with assistance from Zheng Lifei, Alf Cang, Luo Jun, Li Yanping. Editors: Paul Panckhurst, Chris Anstey

To contact Bloomberg News staff for this story: Sophie Leung in Hong Kong at +852-2977-6126 or sleung59@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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