Chinese Inflation Drops: Provideo Financial Reports

After three quarters of high inflation and limited growth, Chinese inflation has fallen sharply giving authorities room to stimulate the economy and further growth.
 
Nov. 17, 2011 - PRLog -- Chinese industrial output grew at its weakest annual pace in a year and inflation fell sharply in October, giving Beijing room to stimulate the economy amid weak U.S. and European growth. Consumer inflation declined to 5.5 percent from September's 6.1 percent as double-digit rises in food costs slowed. Investment, which drives the Chinese economy, held steady with a 24.9 annual per cent increase. Lower inflation gives China's leaders leeway to reverse interest rate hikes and other curbs imposed to cool an economy that grew by 9.1 percent in the latest quarter. Those controls squeezed entrepreneurs and fed fears the economy might slow too abruptly at a time when hopes are pinned on China to prop up global growth. Inflation is politically dangerous for the ruling communists because it erodes economic gains that underpin their claim to power. The inflation figures soothed investors' concerns about a sharp slowdown, supporting oil and copper prices and underpinning Chinese shares, although market direction was being largely set by events in Europe. Evidence that food inflation is easing also supports the case for further fine-tuning measures from the government.

A senior official from the country's top economic planning agency signalled caution ahead, saying inflation was likely to stay high in coming months. Inflation peaked at a 37-month high of 6.5 percent in July, driven by high food prices caused by strong demand and summer flooding that damaged crops. Analysts expect inflation to ease as the autumn harvest comes in, though the government says it will overshoot the official 4 percent target for the year. Beijing has promised more bank lending to help small and private companies, but says credit and investment curbs imposed to cool a real estate boom that has driven up housing costs will stay in place. The credit clampdown has helped to slow the rise in housing costs but has hurt the real estate and construction industries, which account for about 10 percent of China's economic output. While most analysts rule out an immediate cut in interest rates, there is more debate on when the central bank might reduce bank reserve ratios. At 21.5 percent, the RRR is at a record level for big banks. Analysts at ANZ believe the economy is deteriorating so quickly that the PBOC could imminently start to ease policy by reversing some of the nine hikes to RRR made in the tightening cycle that began in October 2010. Annual economic growth rates have fallen for three straight quarters. Analysts forecast growth would slow to less than 9 percent next year for the first time in a decade.

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About Provideo Financial:
Provideo Financial is a family oriented firm that operates on a set of sound financial strategies designed to maximize our client's investment opportunities.
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