Stagflation, Made In China Edition

So much for the world's largest economy no longer overheating. CPI came ahead of expectations yet most other key economic indicators confirmed a slow down in the economy, even as borrowing appears to be picking up once again. Could China be exhibiting the very first symptoms of our very own stagflationary squeeze?

  • CPI at 5.3%, Consensus at 5.2%, previous 5.40%
  • PPI at 6.8%, Consensus at 7.0%, previous 7.3%
  • Industrial Production up 13.4%, Consensus of 14.7%, previous at 14.8%
  • Retail Sales 17.1%, Consensus of 18.0%, previous 17.40%

And more from Bloomberg, which was lucky enough to have the fake data embargoed in advance:

China’s consumer prices rose 5.3 percent in April from a year earlier, exceeding the government’s full-year target for a fourth straight month.

The gain was more than the 5.2 percent median forecast in a Bloomberg News survey of 30 economists and compared with a 5.4 percent increase in March. Producer prices increased 6.8 percent, the statistics bureau said today in Beijing.

Inflation is “the most pressing problem” facing China, Vice Premier Wang Qishan said at talks in Washington this week where the U.S. pressed for faster gains in the yuan. Economists’ median forecast is for one more interest-rate increase this year, adding to four since mid-October, as a dip in commodity costs and more favorable bases for comparison slow price gains in the second half.

“Another slight uptick in inflation is possible by mid- year, but it seems that for inflation, the worst is nearly over for China,” Alaistair Chan, a Sydney-based economist at Moody’s Analytics said before today’s announcement.

Fixed-asset investment grew 25.4 percent in the first four months of 2011 from a year earlier, today’s report showed. Retail sales rose 17.1 percent in April and industrial production gained 13.4 percent.

The government aims for full-year inflation of 4 percent as Premier Wen Jiabao eyes the risk that rising prices for basic goods and housing will fan social discontent. Commodities had their biggest weekly decline since December 2008 last week, aiding his campaign by trimming the nation’s import bill.

Officials have raised banks’ reserve requirements, reined in credit growth from the record levels of 2009 and 2010, restricted home purchases, and this month fined consumer goods company Unilever 2 million yuan ($300,000) for telling the media that it planned to raise prices.

The median forecast in a Bloomberg News survey of analysts is for the benchmark one-year lending rate to rise by a quarter percentage point to 6.56 percent by the end of the year. The People’s Bank of China let the yuan gain 0.9 percent in April, the fastest pace of appreciation this year.

“With economic growth stabilizing, policy makers signaling they are willing to tolerate faster currency appreciation, and global food prices stalling, inflation appears on course to decline over the second half of the year,” Wang Qinwei, a London-based economist with Capital Economics, said before today’s data were released.

Deutsche Bank AG estimates the yuan may appreciate at an annualized pace of 7 percent to 10 percent against the dollar over the next two months to reduce import costs before gains slow in the second half of the year as inflation drops “sharply.”