China Inflation Probably Quickened Last Month; Rates May Rise

By Nipa Piboontanasawat


Nov. 12 (Bloomberg) -- China's inflation probably quickened in October as food prices climbed, adding pressure for the nation's sixth interest-rate increase this year.

Consumer prices rose 6.3 percent from a year earlier, according to the median estimate of 20 economists surveyed by Bloomberg News, after gaining 6.2 percent in September. The statistics bureau will release the figures at 10 a.m. tomorrow.

Food prices, a third of the consumer price index, are elevated on pork and vegetable costs. The government this month also raised fuel prices as crude oil surged to records. Inflation that is higher than returns on bank deposits encourages households to speculate on stocks and property, raising the risk of boom-and-bust cycles.

The central bank may have ``little choice but to hike rates to anchor inflation expectations and to prevent bank deposits from fleeing out of the banking system,'' said Liang Hong, senior economist at Goldman Sachs Group Inc. in Hong Kong.

The People's Bank of China last week ordered lenders to set aside bigger reserves for a ninth time this year, raising the ratio to the highest since at least 1987 when records began.

The CSI 300 Index of stocks has climbed almost 150 percent this year, while property prices in the 70 biggest cities rose 8.2 percent in the third quarter from a year earlier.

Liang predicts two more interest-rate increases this year.

The central bank said last week that inflation will accelerate to about 4.5 percent this year from 1.5 percent in 2006, citing expectations for prices to rise and pressure from food, energy and labor costs. That compares with the key one- year deposit rate of 3.87 percent.

August's 6.5 percent inflation was a decade high.

Gasoline, Diesel

The National Development and Reform Commission this month raised prices for gasoline, diesel and jet fuel. That broke a pledge that regulated prices would be frozen until year's end to contain inflation.

The wholesale price of pork rose to 18.09 yuan ($2.44) a kilogram in the week ended Oct. 26, the highest level in six weeks, according to the commerce ministry. The meat's price surged this year on a shortage caused by feed costs and disease.

Wholesale vegetable prices rose about 15 percent in the third quarter from a year earlier on production costs and declines in arable land, according to the Ministry of Agriculture.

The government this month ordered vegetable-oil processors to limit price increases to stabilize the edible-oil market.

Some economists argue monetary tools aren't useful for dealing with inflation largely related to food supplies.

``The problem with food prices is a supply-side squeeze related to harvests and the health of the hog population,'' said Carl Weinberg, chief economist at High Frequency Economics in New York. ``Inflation is not running amok.''

Producer prices probably rose 3 percent in October from a year earlier after climbing 2.7 percent in September, the Bloomberg News survey showed. The National Bureau of Statistics will release the figures at 10 a.m. today.

The following tables show economists' estimates for percentage changes in China's money supply and consumer and producer prices in October from a year earlier.

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M2 CPI PPI
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Median 18.3% 6.3% 3.0%
Average 18.3% 6.3% 3.0%
High 18.9% 6.8% 3.5%
Low 17.7% 5.7% 2.5%
Number of Estimates 22 20 16
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Action Economics 18.5% 6.0% 3.5%
ANZ Banking Group 18.1% 6.0% 2.5%
Bank of China (Hong Kong) 18.8% 6.0% 3.2%
Capital Economics 17.7% -- --
CIMB-GK Research 18.4% 6.3% 3.0%
Citic Securities 18.2% 5.9% 2.8%
Citi 18.3% -- --
Daiwa Institute of Research 18.3% 5.7% --
Deutsche Bank 18.0% 6.6% 3.0%
Forecast Ltd. 18.8% 6.5% 2.8%
Goldman Sachs 18.9% 6.8% 3.0%
Hang Seng Bank 18.4% 5.8% --
High Frequency Economics 18.4% 6.3% 2.9%
HSBC 18.2% 6.5% 3.1%
Industrial Bank 18.1% 6.7% 2.8%
JPMorgan Chase 18.2% 6.4% 3.2%
Mitsubishi UFJ Securities 18.2% 6.4% 3.2%
Natixis 18.2% 5.9% 2.9%
Royal Bank of Scotland 18.4% 6.3% --
Shenyin Wanguo Securities 18.6% 6.7% 3.1%
Standard Chartered Bank 18.4% 6.3% 3.1%
Thomson IFR 18.3% 6.0% --
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