China's Inflation Accelerates as Chill Boosts Food Prices
Comment of the Day

January 11 2013

Commentary by David Fuller

China's Inflation Accelerates as Chill Boosts Food Prices

This is a potentially important news report from Bloomberg. Here is the opening
China's inflation accelerated more than forecast to a seven-month high as the nation's coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery.

The consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November. The decline in the producer-price index eased to 1.9 percent.

Chinese stocks headed for the biggest drop in eight weeks on concern that the quickening in inflation makes further policy loosening less likely, after data yesterday on exports and credit growth underscored the strength of the economic rebound. Chen Yulu, a central bank academic adviser, said Jan. 8 that price gains may become a concern in the second half.

"With growth momentum firming up and inflation picking up, the likelihood of any further easing has disappeared and the next interest-rate move will probably be an increase," which could come as early as the fourth quarter, Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, said in a telephone interview.

David Fuller's view I saw the headline for this article and the latest inflation data in the early hours of China's trading this morning and it had only lowered the Shanghai A-Share Index (weekly & daily) by about 10 points. However, as the news spread the market sold off more sharply in the latter part of the day because food price inflation, let alone shortages, is always a serious concern in China. They have produced hardship for the poorer masses and also riots, which are what authoritarian rulers fear most because rigid political systems have fewer safety valves.

This article is also interesting because I imagine China's rulers and their counter parts in other regions of Northern Asia would welcome a little global warming, instead of the extremely harsh winter mentioned in the opening paragraph of the article above. (See also Journey to Asia - on climate.)

Today's big downward dynamic for SHASHR, best seen on the daily chart above, is the first since the strong rally commenced in early December. It will be interesting to see what follows next week but steady action will be required to indicate that we have commenced the slower period of upward ranging that I mentioned yesterday, rather than the likelihood that we have seen a peak of at least near-term significance.

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