Chinese Inflation Explodes: Hits 3 Year High 6.4% In June

Tyler Durden's picture

It had been widely expected that Chinese CPI would come in smoldering in June, with some predicting a print of 6% or just over. Few, however, expected 6.4%, a blistering spike compared to May's 5.5%, which is the highest inflation recorded in China in 3 years, and depending on how one looks at GDP (and the government's way is certainly modestly flawed to say the least), China may well be approaching the revolutionary point where real interest rates turn negative, and purchasing gold becomes a costless opportunity, which in turn would send the price the yellow metal well north of $2,000. China Daily, the government's official mouthpiece comes with the usual Douglas Adams advice: "We don't have to panic about the June CPI figure," said Zhang Liqun, a macroeconomic analyst with the State Council Development Research Center, China's top government think-tank....Of the 6.4-percent CPI growth in June, 3.7 percentage points were
contributed by the carryover effect of price increases last year, the
NBS said in a statement on its website. "A CPI growth above 6 percent doesn't mean the inflation situation is worsening in China, because 3.7 percentage points of the increase were contributed by the carryover effect," Zhang said." See: inflation is transitory. First in the US now everywhere. Elsewhere, expect more RRR hikes to follow in the coming weeks in the aftermath of the just announced general interest rate hike as the PBoC, contrary to its own advice, starts panicking.

Charting Chinese CPI:

More on the "dont panic" meme:

Food prices, which account for nearly one third of the basket of goods in the nation's CPI calculation, continued to rise 14.4 percent in June from the same month last year, a pace faster than May's 11.7 percent.

Growth in non-food prices also accelerated to 3 percent in June, up from a year-on-year increase of 2.9 percent in May.

In terms of regions, the CPI rose 6.2 percent year-on-year in China's urban areas, and the growth in the rural areas was 7.0 percent, according to the NBS.

On a month-on-month basis, food prices added 0.9 percent from May, with the pork prices jumping 11.4 percent from previous month. Month-on-month price declines were reported in vegetables and fruits. Non-food prices were flat in June as compared with May.

Calling the June CPI figure "within the market's expectation," Zuo Xiaolei, chief economist for the Galaxy Securities, said the inflation rate would remain high in the future because "it takes a while to release the inflation pressure gradually."

Zuo said under such great inflationary pressure, she foresees no change in the country's monetary policy, which will be kept in a reasonable range to maintain a steady economic growth.

And more:

Liu Shucheng, a senior economic research fellow with the Chinese Academy of Social Sciences, said China has had an inflation rate around 6 percent many times in the past. According to the NBS data, China has seen a monthly CPI growth above 6 percent eight times since 2007.

"Our country has experience to battle an inflation rate around 6 percent, but of course we should manage inflation, particularly the inflationary expectation," Liu said.

Regarding the outlook of inflation, Liu expects CPI growth to weaken starting July due to the government's anti-inflation measures, tighter liquidity in the market and falling commodity prices in global market.

So far so good. The problem with the whole liquidity withdrawal approach is that it is, well, really withdrawing liquidity. The recent move higher in SHIBOR, which most expected would be merely transitory like back in January and February, is proving to be rather resilient, with 7 days interbank lending and repo rates now firmly lodged above 6%.

This is without doubt the biggest threat to the Chinese economy, whose banks now finds themselves unable to borrow in the interbank market absent liquidity injections from the PBoC, which in turn end up showing up in subsequent CPIs. And if there is a CPI print north of 7% in the second half of 2011, we predict that will do more for the price of gold than any other yet to be validated theory about short covering sprees, or exchange busts, or anything else.


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KennyG09's picture

Eat another iPad Bitchez.

Papasmurf's picture

Your smug attitude suggests you think increasing costs won't export to your standard of living.

baby_BLYTHE's picture

Rates still in negative real territory. This is the problem with Ben's thesis. Inflation just continues to get worse yet real wages never rise.

KennyG09's picture

Bankers get large bonuses and the stock market is going up. That's a big enough increase in supplemental income right? That's what my economics teacher told me. He must be right.

Quixotic_Not's picture

The looting will continue until morale improves ~ Bankster/Politeer motto 2008-2012?

Well U.S. citizens, keep voting for (D) & (R) Free Shit Empire™, expecting different results (insanity) and dope you can bleed in!

JR's picture

Bernanke is finished, says David Stockman; and in one of the toughest talk show interviews yet, he backs it up with the facts.

As the world economy continues to slowly tank in a complete disconnect from market prices, it seems apropos to review Dylan Ratigan’s interview June 23 with Stockman.

Stockman, a former CBO director, shows why politicians around the world were desperate to perpetually protect the banks at the expense of hundreds of millions of people on Main streets around the world… wealthy, poor, old, young…

Here’s why Bernanke has sung his swan song, according to Stockman (rough draft):

Bernanke’s fabulous exercise in money printing - QE1, QE2, zero interest rates - has been a calamity of historic proportions.  The only thing it did – and we know this now, today - was to bring a huge windfall of speculative gains, literally tens of billions to Park Avenue, and left Main Street high and dry with double digit food and energy inflation and with zero digit interest on bank accounts… The problem we have in our economy is a 30 year buildup up of debt, nothing like we’ve ever seen in history… $52 trillion of public and private debt… 360% of GDP compared with a normal ratio of 160%...

And what did Bernanke do over the last two years? He tried to drive zero rates to negative, thinking that we just needed to borrow more money, stimulate some more credit and the problem would be solved … That’s backwards, the problem is in the financial system… we needed to address the disaster that we have in the banking system, not print more money and encourage massive speculations in commodities, currencies… and all the other things that are tearing up the whole world…

The household sector still has a massive amount of deleveraging to do, the business sector has $11 trillion of debt, the highest ratio of debt to net worth in decades; and we know where the government debt is - out of control… This is a debt problem that can’t be solved by printing more of it…

Main Street wasn’t heading down the black hole; a great depression wasn’t anywhere in sight along the length and breadth of America… This was a panic on Wall Street that was served up by Bernanke and Paulson…a problem in the financial system - where we needed to allow the correction to take place - and if Goldman Sachs went bankrupt, Goldman Sachs should have gone bankrupt - it would not automatically have rolled into the rest of economy, that’s just urban legend… The 700,000 jobs lost a couple of months in late 2008 and 2009 were a one-time disappearance of excess employment funded by the phony prosperity of borrowing $4 for every dollar of GDP when we went to the peak; those weren’t real jobs… the economy wouldn’t have gone down the drain…

Where would we be if Bernanke had done the right thing and left interest rates where they were and restructured the banking system?  We would have been better off today…

This wasn’t a great depression, this was the blackberry panic of 2008… We have gone in exactly the wrong direction for two years now;  the Fed is only making it worse and it’s led by people who basically are in the thrall of Wall Street and Keynesian economics that just say print debt and somehow prosperity will return…

Jeffrey Immelt’s claim that GE was within a few days of collapse was utter nonsense - GE needed a massive equity offering and a dilute of their stockholders… Immelt needed to restructure his company and debt… Instead GE got a $60 billion lifeline from the Fed because some crony capitalist by the name of Jeff Immelt calls up Hank Paulson and says my hair’s on fire…  GE’s price structure should have gone to $1 and GE’s CEO should have been looking for new employment… that would have solved the problem…

As an alternative to allowing the financial system to correct, according to Ratigan, hundreds of millions of people around the world took the hit… all to preserve a tiny cabal of bank capitalists

Dirtt's picture

You Da Man.  You should lurk in higher places.

NOTaREALmerican's picture

Well,  Stockman had no "pull" with the Reagan Keynesians and he won't have any now.  

Debt is just another addictive (virtual) narcotic (like porn).   Most humans will demand more until they die from the stuff.  

rwe2late's picture

But ..but, but, economists of repute say we were saved from something inexplicably dreadful,

everyone knows the public came out ahead because the bailouts were paid back, with interest too,

and the President has explained how recovery has already started, ... slowly, ..well, almost anyway.

Obviously, Stockman knows nothing about economics.

Furthermore, there is no conspiracy by financial tycoons and corrupted politicians.

NWO talk is just nonsense.

Our informed citizenry now safeguards freedom around the world.


Papasmurf's picture

Every recession and depression followed massive fraud.  The consequences follow when the fraud is discovered, not when the money is stolen.  This time is worse, because the theft was in plain sight and facilitated through government leaders.   None of the thieves has gone to jail except for Martha Steuart and Bernie Madoff.  They were small time players and their theft was irrelevant because of size.   If those two hadn't opened their mouth, they also would have gone free. 

The financial system will continue to collapse, because none of the fraudlent behaviour was punished.  No one of consequence went to jail.   Greenspan called things a crisis of confidence.  In a confidence game, such as fiat currency, confidence is everything.   When fraud goes unpunished, the roots of confidence perish.  I don't see a recovery happening until there are serious prosecutions.  So I don't see a recovery in my lifetime.   

Milstar's picture

Are we forgetting the Arab spring that saw more dictatorships fall than in all the history of US interventions and embargos. 

Sudden Debt's picture

In europe they are trying to put a cap on inflation by raising rates 25 points.

It won't help a bit and also will make matters worse for the PIGGS.

But at this rate, inflation will be at 4 to 5% this year in the EU. The official inflation that is...


Atomizer's picture

They'll coordinated another China rate hike to sell the debt ceiling issue.

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

These imbeciles think the public will believe the lies of a new crisis again. Hahahaha!

Sudden Debt's picture

Nobody believes crap out of that story.

China IS exporting it's inflation and we're also creating our own.


I went to the stores today and the way I feel it, prices are up at least 50% since 2 years ago.

But the sad part is that nobody realizes WHY this is happening.

In 2012 it's election time in Europe. I wonder how many parties will have inflation on the agenda (besides the fact they want to put a cap on salaries)

And putting a cap on salaries (which will happen) will cause a severe drop in purchasing power.


Atomizer's picture

At his first press conference since being elected President, Barack Obama spoke about new job numbers and steps the government can take to help our struggling economy.

Front 242 - Headhunter

It's all about world government formation. Quick, painless and speedy prior to 2012. Brick walls, soft patches, and epic failure will result as aggressive outcome prevails.

HungrySeagull's picture

Folgers Coffee 9.70 per container now.

Last year occasional sales at 4.50 I still have a few left over from 60 dollars worth I bought in bulk last year.

nope-1004's picture

Funny you should say, cuz I noticed the same with Maxwell House.  Up 60% ish in the last 3 months.

But, we don't have inflation.  None.  </sarc>

Idiot Benocidal shitbag econopig Bernanke.


Jack Napier's picture

$3.99 for a regular Transformers comic doesn't seem right either... maybe if it was an RI cover, but not the standard weekly off the shelf.

NOTaREALmerican's picture

I bet Ben is really envious of the Chinese level of inflation tho.   

wandstrasse's picture

will make matters worse for the PIGGS.

SD, the first G in your PIGGS is Greece. Is the second one ... gasp.... Ge... <nervous breakdown>

goldfreak's picture

This is yearly rate am I right, meaning inflation is running at 7% a year?

thunderchief's picture

That's OK.  You have to take into account that each year you lose about 2 percent of your life, which you should knock off those numbers.  If you do that it make you feel better. For a little while.

centerline's picture

Is going to be interesting to see where the USD goes from here.

InvalidID's picture

Wel, if it goes down on this news it will only drive Chinese inflation higher... We tank the dollar and China blows up....

centerline's picture

Joined at the hip.  When the Chinese facade begins to crumble, we will another potentially explosive "moment."

InvalidID's picture

 I think we have 18 months TOPS before things go back the way nature intended. Resources (commodities) will be the only value, those who have them will be ok, those that don't won't.

papaswamp's picture

China sez..." Let the people's eat corn!"

"China this past week bought 540,000 metric tons of U.S. corn for delivery after August, according to the U.S. Department of Agriculture, more than the 500,000 tons the agency forecast that nation would buy in an entire year. "

Slin's picture

Yes and corn was just raided by a lie of a report from USDA.  Price fixing.  Happy farmers?  China is.  How is your fuel costs farmers?  Wana stay in business?  Just wait..

bill1102inf's picture

Farmers? Making more money this year than ever.  Rich beyond 98% of American dreams. Fuel Costs?????? SMALL % of their cost to produce! Nevermind many farms have multiple 10,000 gallon fuel tanks and they bought when we were paying $2.00 a gallon for gasoline, but they don't have to pay any taxes on it, so MUCH less.  Take into account subsidies and its one of the best businesses in the world.

papaswamp's picture

Only for the big guys...small farmers don't get such luxuries.

Quixotic_Not's picture

Haha...jokes on the Chinamen!

The Great Cultural Revolution Part Deux - Culling the proletariat, one organ failure at a time:

Monsanto's GMO Corn Linked To Organ Failure, Study Reveals

papaswamp's picture

Just another means of population control.

gianakt's picture

When does rioting begin!!!

carbonmutant's picture

When the nouveau riche start losing their jobs....

NOTaREALmerican's picture

When the average Merican realizes he's just average and he (nor his kids) will be part of the top 10%

Merica exists because of the fantasy of being above average - reinforced with 50+ years of increasing debt,  so the fantasy is literally THE Merican culture itself.   It could take decades for the fantasy to collapse.  Hell,  it took the godless commies decades to collapse.   Surely OUR fantasy is was better than theirs.  

Slin's picture

They might wana think about getting off the dollar's nuts

gianakt's picture

What the Chinese don't understand is that putting a bid under the US dollar and getting it to go much higher will bring down commodity prices and there inflation. Keeping the bid under the Euro just causes there inflation problem to get much worse month over month.

Quixotic_Not's picture

What you don't understand could fill a server farm...

There are short-term and long-term plays at work here, and never forget that favors are acheived in post-Maoist China through tendering the best bribes - Most bankster/politeer leaders across the globe don't give two shits about their own countries, and this is X10 in the PRC...

China's neuvorich are fleeing at monsterous rates, mostly to the West Coast of 'MeriKa and Kunuckstan.

Gotta get while the getting is good...

HungrySeagull's picture

Even server farms require more. More power, more storage, more parts more cabling more, more more...

The Server farm is the Roman Galley manned by Slaves hauling at the oars to the drumbeat of the millisecond.


No I say a little is enough when it has much useful.

carbonmutant's picture

They're also propping up real estate prices in the land of Oz...

NOTaREALmerican's picture

Re:  They're also propping up real estate prices in the land of Oz...


Oddly enough,  there seems to be a mini-boom right now in existing Chinese imigrants buying property in Kali (in the Sac metro area, anyway).    Hu knows,  it might be related.  Interesting times.  

apberusdisvet's picture

Hmmm.  And millions of Chinese (and Indians) will be buying every PM that they can get their hands on.  So long COMEX, it's been (un)real.

Transitory Disinflation's picture

Anyone heard about "Tui Bei Tu" ?  It looks like it maps out China's future and has been accurate for 55 of 60 occasions.  All based on SuperIching.

Here is the "56th" event :

Flyers are not birds, swimmers are not fish,
A war does not depend on soldiers.  It's a game of technology.
Millions of miles of deadly smoke, on top a mushroom and at bottom a fountain.
A sight out of people's imagination.  Big trouble not solved, but greater trouble arrives.

Also a set of (seperate) poems to accompany this Tui Bei Tu:

11th poem:
Hexagram: [Li]
Four doors are wide open,
Everything rushes in at once,
A whistle from the West,
Turns into devastation.

(The People's Republic of China now holds an open door policy and promotes international trading.  The last two sentences of this poem seem to suggest that China and the West will fight a war in the future.)


snowball777's picture

You sure he wasn't talking about that Sino-Forest shit?

reader2010's picture

That's their way of writing off bad debt.

ISEEIT's picture

Free fiat tip of the day:

Wait for AUD/USD to algo up to 1.770-90, then short that shit. Can't lose in risk on/off world.

I know, it's only money. But what the heck eh? If it's free must be good?

Besides, you can always buy silver with the fiat thereby converting worthlessness into value!

Alchemy bitches.


Quixotic_Not's picture


The Trend is your friend...

firefighter302's picture

Food is nearly 1/3 of the inflation metric of a Communist government in China.

What percentage is food calculated in the "fair and free" US inflation statistics?

I wonder has they calculate unemployment in China?