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China Is Overheating... Again: CPI And PPI Both Come Much Higher Than Expectations
The much awaited Chinese CPI and PPI have been released: CPI came at 5.1%, on top of the whisper number, but higher than the official consensus of 4.7%, and the highest number by far in over two years. PPI beat by 100 bps, printing at 6.1%, compared to 5.1%. This "data" should be sufficient to negate the impact of last night's RRR hike and force the PBoC to raise its interest rate, as if the Chinese central bank does not act, one would wonder why the Politburo would allow the release of data which would only enflame the domestic inflation scare even more.
This number was precisely as leaked earlier, just like the 4.4% CPI print prior which was also leaked by internal officials apriori:
China's consumer price index likely rose 5.1% from a year earlier in
November, the fastest increase in 28 months, the Economic Information
Daily reported Friday, without citing any sources. The newspaper didn't identify whether the report's author, Liu Zhendong, is a reporter or an analyst.
Here is good example of how Credit Suisse looks at Chinese "data" as per the last release.
Some additional color from Bloomberg:
Consumer prices rose 5.1 percent from a year earlier, driven by food costs, a statistics bureau report showed in Beijing today. That was more than the 4.7 percent median forecast in a Bloomberg News survey of 29 economists. In October, inflation was 4.4 percent.
The strength of consumer-price gains and capital flows into the world’s fastest-growing major economy may require the central bank to add to October’s increase in benchmark rates, the first since 2007. Officials yesterday raised reserve requirements for banks for the third time in five weeks to drain money from the financial system.
“The case for a rate hike now to help manage inflation expectations is indisputable,” Wang Tao, a Beijing-based economist at UBS AG, said before today’s release.
China, which overtook Japan as the world’s second-largest economy in the second and third quarters, lags behind Asian countries including Malaysia and South Korea in boosting borrowing costs.
The nation’s industrial-output growth accelerated to 13.3 percent last month from a year earlier, today’s report showed. That exceeded economists’ median estimate of 13 percent.
Retail sales gained 18.7 percent. Urban fixed-asset investment rose 24.9 percent in the first 11 months of 2010 from a year earlier, topping analysts’ median estimate of a 24.3 percent gain.
Producer prices rose 6.1 percent in November from a year earlier, exceeding analysts’ median forecast of 5.1 percent, the statistics bureau report showed. Costs of raw-materials such as cement, steel, fuel and cotton have surged, a survey of purchasing managers indicated on Dec. 1.
London-based Capital Economics Ltd. said yesterday that a rate increase after senior officials conclude an economic policy meeting in Beijing this weekend “cannot be ruled out.” The Politburo has already announced that the nation will officially switch next year to a tighter, “prudent” monetary stance.
The benchmark one-year deposit rate stands at 2.5 percent, less than the pace of inflation, and the lending rate is 5.56 percent. The Shanghai Composite Index of stocks has fallen 10 percent from a Nov. 8 high, extending this year’s loss to 13 percent, on concern tighter monetary policy will cut economic growth and profits.
“Inflation is shaping up to be the primary challenge facing policy makers in coming months, and it makes sense for them to bring out the big guns,” Brian Jackson, a Hong Kong- based analyst at Royal Bank of Canada, said before today’s data. Tools may include a faster pace of yuan appreciation, as well as higher rates by year-end, he said.
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Very interested to see what the effect of a rate hike would be on US equities . GM must be quivering .
Well played. You think Obama and his lackies might be a tad worried too?
I would say that if the authorities let the Yuan appreciate ( another decent method for curbing inflation ) then Obama et al would be thrilled . It's those who have been ramping up equities who might be getting a tad bit worried . Although given that we're in low volume December I'd say they could still prop things up . These guys thrive in low volume environments .
we have been in low volume for months--where was the pickup that was supposed to occur after "vacations" ended in September? This looks like the new normal volume to me.
They will be thrilled for about 24 hours, after which they will realize that inflation exportation was an all or nothing proposition, and as soon as they stop buying our inflation, they send all that they have accumulated over the last 40 years back to us, while at the same time perhaps doubling the purchasing power of the Yuan.
That's about $1 Trillion that will be pumped directly into asset prices, not into banks.
I think what they really want is just for them to keep the peg, but lower it a bit.
"Very interested to see what the effect of a rate hike would be on US equities ."
Higher, of course.
mad freaks and gambling junkies!
mad they are.
Only commies and fools trust central planning, look what it's doing for us.
+1
Helicopter Ben's dollar bombs are having the desired effect, it seems.
See? Bernanke may not be as stupid as the consensus believes him to be on zero hedge!
So you think when that inflation gets exported back to the US that it is going to help ?
Why doesn't China just keep the inflation if it is so great ?
Do you think that productive industry just appears out of thin air as the dollar falls ?
or maybe he is.
http://www.youtube.com/watch?v=9QpD64GUoXw
Jim Rogers said he doesn't know whether Ben Bernank is a fool, a charlatan or a liar.
http://www.msnbc.msn.com/id/31510813/#40556155
(a), (b), (c), (d) all of the above
As long as Aussies pay 33% more each time they buy a house, the sky is the limit! Aussie, Aussie, Aussie......
China is HOT.
And bothered.
After, there is only so much you can squeeze from a populace at the
1) Barrell of a gun
2) Threat of the gulag
3) Tip of a horsewhip
ORI
http://aadivaahan.wordpress.com
crack up boom? increased price controls and capital controls? or will they get smart and depeg? or at least repeg a little more often.
All or any or none of the above, we're all headed down them tubes....
Good news, bad news, no news, controls, no controls....clearly it's all rather, shall we say... what's the word....de-something or the other.
Anyways....yup, etc.
Weird world.
ORI
http://aadivaahan.wordpress.com
Seems to me that inundated with ever weaker dollars that we are actually exporting our inflation to the Chinese. This is the downside of their fixed exchange rate. We send them ever more of our ever weakening dollars. They, in turn have more to spend, especially on basic commodities. I might also argue, that apart from a limited money supply that increasing prosperity will drive up prices in China. I don't think a 5.1% inflation rate is anything horrendous. Consider how cheap Chinese goods within China probably are.
The main problem for the United States will be if they raise their interest and bond rates it could begin moving large amounts of capital into their country. I don't think anyone cares for our near zero short term interest rates. If capital moves to China then Ben Bernanke will have to buy 100% of future bond issues making the monetization of our debt visible to even the blind.
they still have capital controls so they can moderate capital movements. however you have figured out bernanke's strategy. It's not to keep interest rates low to stimulate the economy. The strategy is to choke the chinese with dollars until they give up their peg.
I agree. That is the way to punish any and all pegged currencies, including S. Korea and many others. However, we have suffer ourselves in order to punish them.
yes we may take a little punishment, but five dollar gas and double priced rice is not much punishment for us, especially when we can monetize. We can take the heat a lot longer than the Chinese can. The question is how soon will they realize it.
We see $5 gas in this country, there will be social unrest.
My wife went to sleep early so I'm baaaaack! Remember chinese official data is just for information purposes only according to Li. Thank you wiki leaks! It may be running much higher. Bernanke's diabolical plan to rule the world is working. They either depeg or rice riots here we come! We can handle a thirty percent rise in rice prices. We won't even notice it. The average rural chinese who spends 50 percent of his income on food will definitely notice. It is possible that Bernanke knows what he is doing. china should feel the pain before we do and hopefully they gradually depeg, buy more products from us and start playing nice.
Break the peg and then what? The world goes ex anti, $orizes itself and the 800M+ agrarians who are living of subsistence wage suddenly become uncompetitive. Or is it they are suddenly empowered via subsidies to buy GMs, build more infrastructure, roads, and all the while absorbing $100+ oil? Perhaps China is set to "play nice" whatever that means and sell CCB to JPM?
Breaking the peg is quintessential short termism - one more tactic to nowhere. Forget the peg, keep ramming those printers and the higher oil cost will mitigate the arb anyway. Of course, overleveraged US consumers can now choke back a $3+ a gallon gas cocktail to chase the negative equity position.
The US grand strategy in Asia is floundering and antiquated. Those like yourself rambling on about breaking the peg, uncorking massive new demand and returning to an unchallenged dollar are lost in the same delusion as those still clinging to the notion that QE 1/2 was about lower rates so people can refinance. Always right around the corner. And of course any peg relaxation - which has already occurred which shouldn't escape mention - would of course result in the US being the monopoly winner, right? Pipe dream. Any benefit of a broken peg would inure to a host of countries and the repercussions in the energy and commodity markets would vastly outweigh the marginal trade benefit.
In the end the China and the US need each other but the marginal utility of the relationship is diminishing. In the end the $ complex needs China more than China needs it - hence the ongoing bilateral deals. Only the most jingoistic and self deluded - even Tim Geithner has admitted we have a problem - could believe the dollar standard is durable.
The problem with setting backfires is the risk of incinerating yourself.
it's good to see there are more and more rational thinkers on ZH these days, instead of the monotonous doomsayers and china-haters that generally dominate.
china's central government instructed its exporters to raise prices to foreigners around the beginning of the year. they told exporters to raise foreign-currency denominated contract prices because they were planning to change the exchange rate mechanism. if those exporters could not survive with higher USD and EUR prices, then they should shut down their businesses. the central government followed through and moved to a crawling/strengthening peg against a basket of currencies (no longer 100% weighted USD, though USD still dominates the basket). the CNY is, by most estimates, at least 5% stronger against a global basket of currencies than it was when the new mechanism was put in place. that is a significant strengthening.
since then, chinese exporters maintained nearly the same volume of exports as before. it turns out that even with the price inceases, they still provide the best bang for the buck in the world. no other country can produce the same volume of goods, at that quality, for that price. (those fools who think china can only produce low-tech/low-quality goods had better open up their ipods/ipads... i am no fan of apple goods, but i have to admit to their QUALITY and aesthetic appeal). china's exports in USD have increased, even though the volume of goods being exported is essentially unchanged, which means the USD prices have increased.
it's extremely clear that the chinese have the upper hand in this symbiotic economic relationship with the US. the fact that china has not caved into US demands to rapidly appreciate by 20% against the USD tells you all you need to know. exports to the US are relatively small fraction of total chinese exports. intra-asia trade is increasing at an exponential rate. indeed, china has been methodically decreasing the proportion of US agency and treasury bonds in its forex reserves, and in fact selling down anytime their reserves do not increase. if QE 1 and 2 had a hidden message regarding china, it was not that the US is trying to force CNY appreciation. it is that the US realizes that china is selling treasuries, and the fed had better stand in line as the buyer of last resort to prevent US rates from exploding. to this end, bernanke made the wise decision... but based on the last 2 weeks of US rates action, it looks like QE2 may not have been enough to prevent US rates from spiraling out of control.
Hey Americhinaman, awesomely written. Here in India, any manufacturing you try to start out, folks will say, just get it from China. Cheaper and better and no need to deal with the red tape and bribery of trying to do something here in India. Startign an industry here is a bloody nightmare.
And as you said, they do produce a ton pf crap, but they can produce really excellent, high quality goods also. I'm in touch with a few of them and the samples are world class (even if the english/tech documentation is a hoot).
ORI
http://aadivaahan.wordpress.com
there is corruption in every country in the world, particularly when it comes to those with political power or those who mobilize masses of working class for them. china is a decade or two ahead of india in terms of the buildout of manufacturing infrastructure, so for the time being it will tend to dominate in terms of quality/costs. in india, when you need to start a new business/industry, you will discover along the way how many officials require bribing. in china, manufacturing infrastructure is largely already set up - and that means that the set of officials who require bribing are already known. a connected person in china can do an honest assessment of costs more easily than india, simply because he has more clarity on who to pay off and how much.
give india 10 years (or less), and i believe it will be just as much a manufacturing powerhouse as china if it chooses that path. if it cannot, it may be that communism is the better form of government for countries managing 1b+ people (jury is out on that so far, though i understand the bias of democratic countries to claim "we're the best!"). unknown to most democratic nations is that chinese people enjoy freedom on par with the developed-world democracies, and in particular they enjoy MORE financial freedom because their taxes are lower (true that the CNY peg is a form of taxation on the masses, but that is another discussion). chinese people get to decide where to deploy the money they earn... that is a powerful right/freedom indeed.
OOOPPPPSSSSIES....
Yeah, like this is going to end well....
David White over at tfnn.com has been bearish for months, and he's been getting killed.
However, today, he has a very good observation about options expiration coming up. Basically, he says that odds are high of a very sharp correction coming prior to Friday next week.
Might be worth playing on the short side.
Listen to the podcast here about 19 minutes into the program.
http://www.tigeruniversity.com/mp3/PTH121010.mp3
He mentions the NYSE Summation Index, which is flat and could go either way.
http://stockcharts.com/charts/indices/McSumNYSE.html
LOL, Robo, you giving us bear candy tonight?
I will know the top is in when you quit getting junked. It means true capitulation has occurred.
@Bigger Dickus Jr.
Are you on your second No Doz and fourth fourloko tonight?
Cheers for posting this . Had completely forgotten about the options expirations next week .
Think the Sultans in the Middle East my be nervous tonight? Because the ChiComs could buy all their gold up in less than 20 minutes of trading on the Dubai market in several hours from now....
everyone even the chicoms and the A-rabs have a stake in slowing the gold price rise. Blowing up the system is in no one's interest.
Buy it now, lock it in today, sell their copper "reserves" to drive commodities down tomorrow. Win-win. Oh, and we're toast no matter what they do....
Tight stops bitchez!
It is possible that Bernanke knows what he is doing. china should feel the pain before we do and hopefully they gradually depeg, buy more products from us and start playing nice.
That isn't going to happen because we don't have much of an export economy to speak of, and not one that would be of much interest to The Chinese. What the Chinese want from us, we won't sell them. I like the thinking on this matter, but The chess game is going to involve depegging and some astonishing machinations with PMs on the part of "asians."
Your post lost all credibility with this sentence:
So how much liquor did Jamie Dimon give you tonight?
Depegging means that the inflation gets exported back to the US.
Productive enterprise is capital intensive. A falling dollar does not mean that productive enterprise will just appear out of thin air.
Bernanke knows how to destroy economies, nothing else.
So I have some options vesting on the 14th and they are currently up 100%. What are the chances they are worth anything by the 15th?
Hmmm, the Politburo is probably looking for an excuse to sever the dollar tie.
Hopefully this is not the case, as that will mean all hell breaks loose in the US...
I am not as sage an analyst as some on here, but can you really rely on the economic data that China publishes? I think that the background story is so important to understand whether the data is full of holes or if it has an ounce of credibility.
Gotta love the manipulation in how this shit gets released after markets close for the week but leaked in time for the S&P to finish up at 1240.
Why did they ramp US stocks on leaked high inflation news from China and before China moved on rates?
+1 Great comment. The nature of information emanating from China appears to be highly dubious, at best.
As much as I like to kick Bernanke and the Fed, I don't think this inflation can be blamed on them.
First, Chinese wages have been rising for a while and many Chinese companies have rather thin profit margins, so wage push is likely driving some of it.
Second, China has been expanding their money supply like a mofo for much of the last decade and a half, and even a quick growing economy like theirs can't always sop it all up... especially if the Western demand dip has slowed their organic growth more than they acknowledge. Perhaps their countercyclical government sponsored building spree is better at maintaining GDP growth numbers than effectively absorbing monetary expansion.
[Chart comparing Chinese/US monetary growth 1994 - 2009] http://english.caing.com/2010-11-16/100199156.html
You want to see debt/credit look at my post in the other China thread.
Very interesting. I think Mr. Shih is likely correct. The Chinese central government is known to "strongly encourage" local governments to "hit their numbers", and building sprees on borrowed money is a good way to do that. Add to that the high likelyhood of local pols and businessmen (often one in the same) growing rich by borrowing in the name of their citizens, and you've got a perfect environment for maximum local leverage. Local debt would be at or above the highest estimates, not below.
I agree Ben is playing a dangerous game, but this is an intended effect of QE2.
We all understand how stomping on USD and writing speculators a blank check drives up commodity prices. What makes the peg particularly painful then is that, while the US is a large net food exporter, China is a net importer, despite the percentage of their population engaged in (subsistence) farming.
This puts them in a very tough position. Price supports drain their reserves and / or lead to shortages and domestic unrest. Raising interest rates leads to layoffs, MtM losses on bank balance sheets that will probably accelerate the recognition of the fact that lots of those debts are bad. It also means that margins have to increase, meaning you either have to raise prices or increase subsidies still further to continue exporting artificially low costs. Of course, increasing subsidies just feeds a vicious inflation cycle....
Don't overlook China's purchases of land, and leases on good productive farmland globally.
Soon, they will not have to depend on anything we have to offer.
When the GDP of 70% consumerism spending ended here, we became disposable, and faster and faster on a monthly basis.
Our PTB have no CLUE how to plan, nor how badly the Chinese can smoke them in economic Chess.
We shall all find that out, the hard way.
.
Cabot's China Letter has a simple China Market Timer that is now short. A fall in PRC equities is long overdue and is now a certainty.
The reason why China has been growing at a rapid rate are :
1. China's growth help resourse nations.
2. Cheap Chinese goods are affortable in very poor countries-improve their standard of living.
3. Chinese investments in other countries help their economies.
4. Chinese imports from Japan, S Korea, Taiwan, etc. help their economies.
5. Foreighn companies operating in China are making profit hand over fists.
6. Chinese workers are employed and getting rich.
7. Chinese banks are lending both at home and abroad.
8. Chinese companies are building roads, rails, ports, power plants, pipelines all over the world.
http://www.financemetrics.com/chinese-economy-not-as-indispensable-as-yo...