Daily commentary about China by TIME correspondents.

The Inflation Bear is Trouble for China

Jun Ma of Deutsche Bank, one of the better China economists in Hong Kong, has just published his latest forecast, which includes inflation going to eight per cent year over year in March. That's a big number and if true could mean serious trouble for the government. It means nothing it's done thus far has even remotely succeeded in cooling off the economy and mounting inflation expectations. Further interest rate increases , of course, a given. But what about faster revaluation of the RMB? A stronger RMB would hurt the export sector and reduce import prices. Pay attention to this one, it could really bite the government in this the year of their Olympic glory...

Here's Jun's summary of his latest forecast.

-

CPI inflation will likely exceed expectations by making 2-3 new highs in Q1 and exceeding 8%yoy in March. We cut our 2008 GDP growth forecast to 10%.
- Macro policy faces growing uncertainty. A combination of tight monetary and a slight relaxation of fiscal/trade policies appear appropriate for the moment.

CPI inflation will likely make 2-3 new highs in Q1 and exceed 8%yoy in March. The Agriculture Price Index rose 18% during January, 14 times faster than the monthly average increase over the previous six months. Excluding the impact of the snow storm, we estimate that the underlying agricultural price inflation remained 2-3 times stronger than the normal monthly increase before the Chinese Lunar New Year.....

We cut our 2008 GDP growth forecast to 10%. We lowered our 2008 GDP growth forecast to 10% from the previous 10.4%. This downgrade partly reflects the modest negative impact of the recent snow storm on the economy (which will likely knock off Q1 GDP growth by 0.6ppts, assuming a multiplier of two on the RMB20bn direct economic loss). It also reflects the impact of worse than- expected US economy on Chinese exports.....

  • Print
  • Comment

Add Your Comment:

You must be logged in to post a comment.
The China Blog Daily E-mail

Get e-mail updates from TIME's The China Blog in your inbox and never miss a day.

Quotes of the Day »

ONLOOKER, as traffic wardens clamped a $1.9m Koenigsegg CCXR — one of only six ever made — and a $550,000 Lamborghini Murcielago SuperVeloce, both belonging to the Qatari owners of luxury department store Harrods