4% Solution -Part 2 -Inflation Eroding China Deposits Feeds Asset Pressure
Inflation Eroding China Deposits Feeds Asset Pressure
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March 12 (Bloomberg) -- China’s accelerating inflation has started to erode household savings, threatening to spur purchases of property and stocks and fuel asset-price pressures.
Consumer prices rose a more-than-forecast 2.7 percent in February, the most in 16 months, the statistics bureau said in Beijing yesterday. The increase means the rate exceeds the one- year deposit rate of 2.25 percent.
So-called negative real rates skew incentives to spending just as China’s economy is already accelerating -- reports this week showed exports rose, industrial production accelerated and new loans exceeded forecasts. The central bank may raise interest rates within the next three weeks, Standard Chartered Bank Plc, Nomura Holdings Inc. and Royal Bank of Canada said.
“A growing number of households will now realize that their deposits in the banking system are losing purchasing power,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. The jump in the inflation rate last month “will increase the social and political pressure for a rate hike in the near term.”
February’s reading was likely influenced by seasonal factors stemming from the Lunar New Year holiday and winter storms that pushed up prices, analysts said. At the same time, the rate may rise further, with the median forecast in a Bloomberg News survey last week for a peak of 4.4 percent during the year.
‘Fear of Inflation’
Since October, the government has highlighted the importance of managing inflation expectations as the nation rebounds from the global financial crisis and commodity costs rise. Eleven of 15 economists surveyed yesterday said that interest rates may rise in March or April.
Barclays Capital yesterday increased its projection for China’s inflation rate this year to 3.5 percent from a previous estimate of 3 percent.
“Fear of inflation” will help to drive property purchases in China because people want “hard assets,” Zhang Xin, the chief executive of Soho China Ltd., the biggest developer in Beijing’s central business district, said in an interview on Bloomberg Television today.
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March 12 (Bloomberg) -- China’s accelerating inflation has started to erode household savings, threatening to spur purchases of property and stocks and fuel asset-price pressures.
Consumer prices rose a more-than-forecast 2.7 percent in February, the most in 16 months, the statistics bureau said in Beijing yesterday. The increase means the rate exceeds the one- year deposit rate of 2.25 percent.
So-called negative real rates skew incentives to spending just as China’s economy is already accelerating -- reports this week showed exports rose, industrial production accelerated and new loans exceeded forecasts. The central bank may raise interest rates within the next three weeks, Standard Chartered Bank Plc, Nomura Holdings Inc. and Royal Bank of Canada said.
“A growing number of households will now realize that their deposits in the banking system are losing purchasing power,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. The jump in the inflation rate last month “will increase the social and political pressure for a rate hike in the near term.”
February’s reading was likely influenced by seasonal factors stemming from the Lunar New Year holiday and winter storms that pushed up prices, analysts said. At the same time, the rate may rise further, with the median forecast in a Bloomberg News survey last week for a peak of 4.4 percent during the year.
‘Fear of Inflation’
Since October, the government has highlighted the importance of managing inflation expectations as the nation rebounds from the global financial crisis and commodity costs rise. Eleven of 15 economists surveyed yesterday said that interest rates may rise in March or April.
Barclays Capital yesterday increased its projection for China’s inflation rate this year to 3.5 percent from a previous estimate of 3 percent.
“Fear of inflation” will help to drive property purchases in China because people want “hard assets,” Zhang Xin, the chief executive of Soho China Ltd., the biggest developer in Beijing’s central business district, said in an interview on Bloomberg Television today.
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posted by Ed E. Trebor at
7:48 a.m.
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