China Households’ Inflation Expectations Rebound, PBOC Says

Chinese households’ inflation expectations rebounded this quarter and the number complaining that property prices are too high rose to a record, a central bank survey showed.

The People’s Bank of China’s report found 49.6 percent believe consumer prices will rise in the next quarter, 4.1 percentage points more than in the previous three months. An index of inflation expectations also climbed, according to the survey posted to the central bank’s website today.

Today’s report indicates it may be too early for policy makers to wind down monetary tightening that’s included five interest-rate increases over the past year. The central bank said this week that stabilizing overall price levels remains the top priority of macro-economic regulation as factors driving inflation haven’t been eliminated.

“Inflation has peaked but the level remains a concern,” Shen Minggao, a Hong Kong-based economist at Citigroup Inc. said before the report. “We do not expect generalized loosening of monetary policy.”

The central bank said in today’s statement that “expectations for future price increases remain strong.”. An index of “inflation expectation” rose 2.6 points to 74.8, after dropping 0.5 points in last quarter’s survey, it said.

Households’ willingness to spend “remains at a low level, more prefer to save and fewer prefer to invest,” the PBOC said, citing “the current levels of consumer prices, interest rates and income.”

Inflation Peaked

The benchmark one-year deposit rate of 3.5 percent has lagged behind inflation for 19 months.

The central bank quarterly survey covers 20,000 urban households in 50 cities.

Consumer-price increases in August slowed to 6.2 percent from a year earlier, down from a three-year high of 6.5 percent the previous month. Economists at banks including Citigroup, Mizuho Securities Asia Ltd. and Macquarie Securities Ltd. say inflation probably peaked in July.

The proportion of households surveyed who say overall prices are “too high to accept” rose to 72 percent from 68.2 percent in the previous quarter, according to today’s statement.

The number who said property prices are too high rose to 75.6 percent, the highest since the PBOC survey started including real-estate data in the first quarter of 2009. The proportion of households who plan to buy property next quarter dropped 0.4 percentage point to 14.2 percent.

Interest-Rate Expectations

A separate PBOC survey of bankers in about 3,000 institutions showed fewer executives expect interest rates to rise in the fourth quarter. A total 56.4 percent of bankers see interest rates rising, down 11.8 percentage points from the previous survey.

A third survey of 5,000 entrepreneurs found that 50.6 percent expect lending rates to be “relatively high” in the fourth quarter, 6.1 percentage points more than that in the previous survey. Some 39.5 percent of entrepreneurs said they expect the availability of loans to be “tight” over the next three months.

--Li Yanping, with assistance from Huang Zhe, Victoria Ruan in Beijing. Editors: Nerys Avery, John Liu

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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