Chinese inflation bubbles on

From Bloomberg (h/t The Lorax):

China’s inflation accelerated to 5.5 percent in May, the fastest pace in almost three years, and industrial output grew more than economists forecast.

The annual gain in consumer prices matched the median estimate in a Bloomberg News survey of economists. Production rose 13.3 percent last month, the statistics bureau said in Beijing today. That compared with a median 13.1 percent forecast.

…“The central bank needs to persist with the inflation fight as price gains are proving stickier than previously thought,” Yao Wei, a Hong Kong-based economist with Societe Generale SA, said before today’s release. “Any let-up would see a rebound.” Yao sees inflation peaking at 6.5 percent this month before moderating.

Producer prices jumped 6.8 percent in May, the statistics bureau said. Retail sales, which are boosted by inflation, rose 16.9 percent after a 17.1 percent gain in April. Fixed-asset investment excluding rural households expanded 25.8 percent in the first five months, compared with analysts’ 25.2 percent median forecast.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. When you read the Chinese blogs, we’re starting to see a lot of complaints about food prices, and it’ll become a political problem if it’s not reined in quickly. Most people might be unaware that the prelude to Tainanmen Square over 20 years ago was the massive inflation in 1988. (do not trust the IMF figures of 18.8%. Ask the people who lived through it : it is much, much higher)

    The RMB peg is under enormous pressure right now.

    • I agree Ronin, the Chinese government are well aware of the pressures of inflation (especially food prices) having potential to lead to unrest. They will try to control inflation, no doubt, and equally will deter any unrest. There is a link below to Patrick Chovanec’s blog wherein there is a post about a recent response to unrest (although not about food) – unrest is dealt with directly.

      I read recently that the majority of young people in China are not even aware that Tainanmen Square even occurred. Apparently not part of the curriculum.

          • So supressing the population was victory for the CCP? Victory in the sense that the holocaust was vicotry for Hittler…he got what was coming to him…so will the CCP!

          • I’m not talking about the morality or otherwise of the victors – simply that they have written it.

            It was a stand-off, one side vanquished. They’re ‘victors’ in terms of the confrontation. That they were amoral, evil, whatever is not the point – what is, is as ‘victors’ they become the writers of history – and wrote it as they deemed fit.

            Truth is often the first casualty of war.

          • We export coal (aka ‘the enemy of the human race’) to an evil authoritarian state. I dare say, not something Australia will be proud of in decades to come.

            Yeah I know, God forbid I bring a moral angle into what we do as a nation. Business is business after all.

          • Lorax

            Australia will never regret selling coal to the Chinese. It would regret it if it didn’t.

          • Mate, if the climate scientists are right, we’ll regret it alright.

            You have to admit, there’s a certain logic to what I say. The only way out of this logic trap is denial.

          • I am in no way as gloomy about the future of the planet as you. I am a believer in the ingenuity of humans, both in scientific and technical innovation and in the human skills of adaptation.

            I must be a denier.

          • Its not about being optimistic or pessimistic, its about looking at the climate science, looking at current trends in energy usage, and making the only logical conclusion. We’re f****d unless we change our ways, and that future cannot include massive coal exports to China.

            Denial is the only way out.

            Look, in a way I can respect the denialists position. At least its consistent, and not hypocritical. I mean, check out this story in the Oz today…

            Martin Ferguson says China demand will protect coal industry from the carbon tax

            I mean, that’s got a logical hole in it my 9yo could drive a truck through. Think about what Marn is saying here: “Oh don’t worry about the carbon tax, because we’re gonna export so much coal to China it doesn’t matter”.

            WTF are we doing this for then?

          • Loess, morals underpin all business.

            I like to say:

            “Value comes from values”

            Worldview, and it’s subsequent morality underpin all human thought – business included.

            Moralize away!

            🙂

  2. No – inflation is bubbling along – as forecast.

    Another property bubble ending story – again nothing new there. Predicted by most every pundit going. Hasn’t quite happened yet though – Patrick Chovanec is not convinced peaks have been reached yet. Andy Xie has forecast falls of up to 50% but feels the Chinese economy will survive the property collapse.

    There are issues to be cognisant of, and not only with China. I recognise that your concern with China is entirely related to your concern that a prosperous future continues for Australia’s resource export market. A concern I share.

    However declarations of collapse and doom are still premature.

    If and when and to what extent it happens, it happens. No point in excessive hand-wringing.

    http://chovanec.wordpress.com/2011/06/11/property-peak-growing-unrest-and-other-tidbits/

    and you might find this from Chovanec’s post of interest:
    http://blogs.wsj.com/chinarealtime/2011/06/10/chinese-gdp-data-how-reliable/?mod=WSJBlog

    Cheers.

    • Why do we believe the CCP when they say inflation is only 5.5%???

      Do you think that maybe, just maybe, the communist Government that controls what their people think would be in a position to also fudge the data and make out inflation is not as bad as it is on the streets???

      It cracks me up everytime a China admirer speaks of their lateast data as if it is unquestionable and accurate.

      Add another 3-5%, then you have the real cost of living increase (about 10%).

      I dont even beleive our inflation figures and we live in a democracy!

      • Oh – I’m not saying the figures may not be rubbery – check out the second link above – but these are the figures on which the world turns…

      • John Williamson at Shadowstats regulary reports on all US data – and his figures often vary considerably from official figures.
        http://www.shadowstats.com/

        For the record – I do think China has achieved some amazing things, some of which may carry undesired costs. But I would prefer China not have a hard landing – but it may. I’m not worried until it(if) it happens.

        It cracks me up when China failists take every minor unfavorable statistic as an announcement of China’s economic death – and are clearly salivating at the prospect of such.

        • Hi 3d1k, watching Chinese inflation figures is only part way there. China is shadow boxing with the West, mainly USA. The USA forced China off the silver standard in the 1930’s.

          Looking out the curve, a global macro event is not out of the question. I’m of the opinion that the Chinese will opt for a defationary bust(US inflationary bust). If you want to ramp up the internal economy then you can do this with a strong currency. In deflation the purchasing power of wages rises.

          See also: History lessons for a world out of balance
          By John Plender http://www.ft.com/cms/s/0/75561136-edd2-11df-9612-00144feab49a.html#axzz16QH6X2zu

  3. Just need to read the actual release to scare the pants off ya. Most of the numbers are just frighting.

    http://www.stats.gov.cn/tjfx/jdfx/t20110614_402731914.htm

    My personal favorites.

    “5 May, the consumer prices rose 5.5% . Among them, the city rose 5.3% in rural areas rose 6.0% ; food prices rose 11.7%

    “1-5 months, fixed asset investment (excluding farmers) 90,255 billion yuan, up 25.8% ”

    “1-5 months, the national real estate investment 18,737 yuan, an increase of 34.6% . Among them, the residential investment 13,290 yuan, up 37.8% .

    • Thanks for that link. Almost everything growing – including inflation. And to think if Patrick Chovanec is right and the housing has not yet peaked.

      With everything gangbusters like that almost impossible not to have inflation.

      China certainly hasn’t crashed yet.

      • And those figure remind that even a couple of % points slowdown in China may not necessarily spell doom for Australia.

  4. I am getting a bit tired of hearing how China will be different and this is the new paradigm…………..it isn’t.

    Chinese are no more or less stupid/greedy/short sighted than the rest of us. We are all human and thus belong to the brotherhood of the fast buck. They will go down like the rest (us included); only uncertain thing is when and how fast……….

    • Pretty sure I saw Kohler on the news tonight say investment was up 25-something percent and retail sales up 17 odd percent.

      Regardless, the consumption share of GDP keeps shrinking, in contrast to what Roach said last night…

      the consumption share of the Chinese GDP will rise from very low levels up to about 43 per cent of GDP over the next five years.

      Roach has confused the 5-year plan with what will actually happen. When it comes to the CCP, watch what they do not what they say.

  5. upstream from the herd

    Nice one Lorax, 3d1k and the rest of you guys; I salivate or should I say drool at your, I hesitate to say, informed comments.

    For what its worth(less), I also believe China has a bright future but to think there will not be dark days or even dark years ahead is very pie in the sky. But lets hope the pie does not turn out to be miles too high.

    Thanks

  6. 3dik I find your China cheerleading amusing.

    The issue that brought down Japan in the 20s was ‘dualism’.

    Whats wrong with this picture?
    “The World’s Billionaires list that Forbes published on March 10 – the eighth such list that Flannery has contributed to since he opened the company’s Shanghai bureau in 2003 – featured 115 people from the Chinese mainland, compared to 64 in the previous year.”

    But

    “Annual average income for employees in Shanghai reached around 65,000 CNY (10,000 USD) in year 2011. Average salary for software engineer/developer in China is around 100,000 CNY (15,400 USD). More experienced software senior developers receive around 150,000 CNY (25,000 USD) and more.

    Factories are increasing payments to workers. Governments are raising minimum wages.

    The incomes of factory workers are still low compared to the workers in United States and Europe. The hourly earning in southern China is only about 80 cents per hour.”

    Dualism. 80c and hour sitting with Billionaires growing and $10,000 a year.

    Coupled with $trillion+ in bad local govt debt thats toxic and its on.

    Stop praying to Twiggy and do some research as to how precarious is:

    1. The debt situation in China.
    2. It is, like all the failed economies, riding a Real Estate economy.
    3. Income polarity is beyond comprehension.

  7. Rota

    I’m not cheerleading for China. I do reckon it’s undergone something of an economic miracle, I have no doubt there will be a price to pay at some stage, it still has enormous inequalities but has managed to take a few million peasants from the fields earning cents a day and put them into manufacturing earning dollars a day (have you asked these people where they would rather be in terms of money – they too want tv’s fridges and phones), in the space of a few decades China has gone from a third world nation to being ready to take its place on the world stage, it is of significant economic importance (not just to Australia) globally, it is a developing military power in the region and its State Capitalism system is a fascinating experiment, no doubt prone to cronyism, manipulation and fraud (funny that, rather like capitalism everywhere)…

    But, most of all, I hope – for our sake and the sake of the Chinese people (including the peasants and factory workers you claim sympathy for and indeed the billionaires (financial envy has never been my thing) because all in all – we are in this together and are united by our common humanity.

    Cheers.

    • 3d1k has created a whole new category for himself:

      China fanboy

      Add that one to your glossary!

      • I like that!

        But you’re wrong. Please read what I have said over the posts. Essentially – I HOPE THAT CHINA DOES NOT CRASH – I hope this for a range of reasons most of which I have articulated. I try to remind others that China has not crashed, has yet to significantly slow and in fact is growing at a very strong rate, it is our best export market, that if China crashes, so do we.

        I am not a China Failist – and by that I mean having an almost gleeful anticipation of a China fail. I keep as well informed as I can about China and am aware of most difficult issues facing that nation. I do think China will face some difficult hurdles, I do think in the long term it will regain/remain a significant global player.

        Do I want it to collapse – NO. Do I think there are some that do – YES – the China Failists.

        Remember, China hasn’t crashed, until it has.

      • I earn about 4x the median income in this country and have assets a boomer would love and I think Twiggy is a knob for reasons other than his income.

        And, I don’t give a rats about China per se but I do about the naive fools from govt down that pin our prosperity holus bolus on such a precariously positioned mega bubble.

  8. “Calculations based on Soufun data show that in the opening months of 2006 an average-price new apartment in China’s capital would cost around $US100,000 — the equivalent of 32 years’ disposable income for the average resident.

    By 2011, the average price had more than doubled to $US250,000, but relatively modest increases in income mean it would now take 57 years of saving for the average resident to cover the cost.”

    http://www.theaustralian.com.au/business/news/the-great-property-bubble-of-china-may-be-popping/story-e6frg90x-1226072284347

    57 years avge income for an apartment? Thats like paying $3.4M for an apartment in Oz.