China GDP grew by 10.7% year on year in the fourth quarter. Industrial production registered a jump of 18.5% in the year to December, while retail sales registered the growith of 17.5% and the rise in retail sales last year was the biggest for over two decades.
Economists are now worrying that the Chinese economy is overheating and inflation is taking off , the 12-month rate of consumer-price inflation rose to 1.9% in December. The recent rise in inflation was caused mainly by higher food prices as a result of severe winter weather in northern China. In many cities, fresh-vegetable prices have more than doubled in the past two months. Analyst suggest that it is not just food prices that risk pushing up inflation: the economy is starting to exceed its speed limit.
If the economy growes, then the extraordinarily rapid growth in money and credit over the past year could quickly spill into inflation. The growth in bank credit slowed to 32% in the year to December, but that is still far too fast. The central bank has started to drain liquidity by lifting banks’ reserve requirements, and some banks have been told to reduce their lending. The bank will probably not raise official interest rates until inflation breaches 3%, but that could be as soon as February.
Information source: economist.com
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