China Holiday Inflation Pickup May Limit Easing Room: Economy

China’s Consumer Inflation Rebounds as Holiday Boosts Prices
Shoppers browse sweaters in Shanghai, China. Photographer: Qilai Shen/Bloomberg

China’s inflation unexpectedly accelerated in January on the boost to spending from a weeklong holiday, limiting room for monetary easing as Europe’s debt crisis damps exports and the property market cools.

Consumer prices rose 4.5 percent from a year earlier, the National Bureau of Statistics said on its website today. That was more than all 33 forecasts in a Bloomberg News survey of economists and a median of 4 percent.

Inflation quickening for the first time in six months adds pressure on officials to refrain from any immediate additional cut in banks’ reserve requirements. The government may wait to see data free from holiday distortions as UBS AG predicts price gains may cool to below 4 percent this month and Bank of America Corp. estimates about 3.3 percent.

“This cuts into the room for monetary policy easing for now,” said Yao Wei, a Hong Kong-based economist with Societe Generale AG. “However, inflation should resume its decline in February and beyond.”

The MSCI Asia Pacific Index rose 0.1 percent as of 6:38 p.m. in Tokyo. The benchmark Shanghai Composite Index rose less than 0.1 percent.

Separately, Commerce Minister Chen Deming said China’s exports probably declined in January after a slowdown in foreign trade in the second half of last year. The data are due tomorrow, with analysts forecasting a 1.4 percent decline in overseas shipments from a year earlier. Hong Kong’s Hang Seng Index fell as much as 0.4 percent following the comments, which came after the Chinese stock markets closed.

Food Prices

The New Year holiday, which ran from Jan. 22 to Jan. 28, boosts prices and retail sales while curbing trade and industrial production. Food prices gained 10.5 percent from a year earlier, up from 9.1 percent in December, today’s report showed.

January’s prices rose 1.5 percent from December, the biggest month-to-month advance in four years. The timing of this year’s holiday boosted January inflation because price gains accelerated ahead of the holiday, compared with last year’s early-February timing, said Zhang Zhiwei, a Hong Kong-based economist at Nomura Holdings Inc.

China’s rate of inflation will “steadily decline” as the effects of the New Year holiday and other “temporary factors” fade, the National Development and Reform Commission, the country’s top economic-planning agency, said in a statement on its website today. Meat and vegetable prices “surged” last month because of the holiday and bad weather, the commission said.

‘Strong’ Demand

Still, the pickup may be more than just seasonal, said Cui Li, a Hong Kong-based economist at Royal Bank of Scotland Group Plc. A seasonally adjusted index from RBS shows January had the fastest gains since November 2010, indicating that “strong consumer demand” is testing “tight supply conditions,” Cui, a former research official at the Hong Kong Monetary Authority, said in a note today.

Starbucks Inc. and McDonald’s Corp. have raised prices on wage and commodity costs, and officials plan to boost minimum pay rates nationwide by more than 13 percent annually from 2011 to 2015, according to a government plan released this week.

The government raised retail fuel charges yesterday, a move designed to spur production by refiners including China Petroleum & Chemical Corp. and PetroChina Co., which were running losses from refining last year.

Easing Delay

“Monetary easing may hold off for one month as the government awaits signs of normalization of the inflation dynamics distorted by the holiday,” said Ding Shuang, a Hong Kong-based economist with Citigroup Inc. He estimates inflation may cool to 4 percent or lower this month.

Producer-price inflation eased to 0.7 percent in January from a year earlier after a 1.7 percent increase in December, a separate report from the statistics bureau showed today. That’s the smallest increase since gains resumed in December 2009 after the global financial crisis. Those data, too, may be distorted by the timing of the holiday.

“It’s comforting that PPI is still decelerating which means upstream pressure is coming down,” Wang Tao, a Hong Kong-based economist with UBS, said in a Bloomberg Television interview. She said January’s CPI will probably be the highest in 2012.

The central bank cut lenders’ reserve requirements in December for the first time in three years to boost credit amid moderating overseas sales. The People’s Bank of China this week pledged to ensure loans for first-home buyers as a crackdown on speculation threatens to trigger a slump in the property market.

Machinery Orders

Elsewhere in Asia, Japan’s machinery orders fell at the fastest pace in three months in December, the Cabinet Office said in Tokyo today. Spending may rebound as earthquake reconstruction work kicks in, and today’s report showed companies forecasting a 2.3 percent increase in orders this quarter.

Indonesia’s central bank unexpectedly cut its benchmark interest rate for the first time in three years, to 5.75 percent from 6 percent. Malaysia’s industrial production growth accelerated in December to a 3 percent gain as manufacturing and electricity output increased, the statistics department said today.

In New Zealand, a government report showed the labor market unexpectedly weakened last quarter. Employment rose by 0.1 percent, or 3,000 jobs, from the third quarter, when it gained 0.2 percent, Statistics New Zealand said in Wellington.

Europe Crisis

The Bank of England may pump another 50 billion pounds ($79 billion) into the U.K. economy as he ramps up protection for a nascent recovery from the threat posed by Europe’s debt crisis. The nine-member Monetary Policy Committee will raise the target for bond purchases to 325 billion pounds, more than a quarter of current outstanding gilts, according to 34 of 50 economists in a Bloomberg survey.

The European Central Bank may announce no change in its record-low benchmark interest rate of 1 percent, according to a survey of economists. ECB President Mario Draghi holds a press conference at 2:30 p.m. in Frankfurt.

In the U.S., a Labor Department report may show little change in the number of first-time claims for unemployment benefits. The median estimate in a Bloomberg survey is for 370,000 filings in the week ended Jan. 28, compared with 367,000 the previous week.

China should consider fiscal stimulus if Europe’s crisis sparks a recession there that affects the U.S., Asian Development Bank Managing Director-General Rajat Nag said in Tokyo yesterday.

“Countries, particularly China, have to consider the possibility of coming in with necessary fiscal stimulus if the euro zone crisis becomes more serious and if the effects of that spill over into the U.S.,” he said.

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