/ 15 September 2011

Chinese survey shows inflation expectations rising

Inflation expectations among urban Chinese rose in the third quarter and most consider consumer prices unacceptably high, according to the results of a central bank survey of 20 000 residents published on Thursday.

The results show Chinese policymakers still face a tough battle to wrestle inflation under control at a time when the real bank interest rates remain negative and there is still too much money sloshing around the world’s second-largest economy.

Among residents surveyed, 49.6% of respondents expected consumer prices to climb further towards the year-end, higher than 45.5% in the previous survey, the central bank said.

Strong inflationary expectations could prevent the central bank from relaxing monetary policy any time soon, despite signs of cooling economic growth that have heightened expectations that the PBOC will pause its tightening campaign.

“People’s feeling for inflation usually lags behind the price trend that the actual reading shows,” said Nie Wen, an analyst at Hwabao Trust in Shanghai.

“But given the still high inflationary expectations, I don’t think there would be any quick shift in the monetary policy in near term, despite worries about a slowing economy,” he added.

A ‘turning point’
Another survey made by the central bank of executives from 3 000 banks in China showed that an increasing number of bankers think the central bank will maintain the current monetary stance in the coming quarter.

The survey of bankers showed that 56.4% of respondents expected higher interest rates in the fourth quarter, down from 68.2% in the previous quarter.

In a separate survey of 5 000 company managers, the central bank found that 39.5% expected credit conditions to remain tight for the rest of the year, compared with 37% in the previous quarter.

Annual consumer inflation eased to 6.2% in August from a three-year high, while economic activity slowed, underlining expectations that the central bank may hold off on further policy tightening amid worries about a global slowdown.

Zhang Xiaoqiang, vice-chairperson of the country’s top economic planning agency also said that inflation had reached a “turning point” and is likely to fall in the coming months due to policy tightening and favourable base effects.

But consumer prices still edged up 0.3% in August from July.

Pork prices, a key driver of inflation in China, rose 0.7% in the week ending September 11 from the previous week, hitting a new record, data from the Ministry of Commerce showed on Wednesday.

More willing to save
The central bank survey also found that residents have become more willing to save rather than invest in the third quarter, due to the sluggish stock and property markets.

With the one-year deposit rate at 3.5% and inflation running above 6%, Chinese savers are effectively losing money by keeping their cash in banks. This encourages them to shift funds into riskier investments such as property.

The central bank said that about 76% of residents regarded property prices as “too high”, while 37.9% expected home prices to rise for the rest of the year, both up from the previous survey.

China’s annual housing inflation quickened in July for the second straight month this year, official data showed.

The government, worried about a property bubble, has unveiled a slew of measures to cool the sector, including expanding its strict home purchase limits to smaller cities while trying to build millions of subsidised homes for low-income residents. — Reuters