China CPI data were released this morning showing that the nation’s consumer prices are rising faster than estimated in March, driven by higher fuel prices and rising food prices. There is speculation that the Chinese economy may be accelerating again.
The consumer price index (CPI) rose 3.6 percent from a year earlier, higher than February’s 3.2 percent gain, and more than the 3.3 percent forecast. This raised speculation that the Chinese government may hold back on further stimulus measures.
Most analysts believe that the recent price pressures were due to the Chinese government’s policy tightening measures in the past year. Premier Wen Jiabao’s government had been concerned about rising inflation. The focus turns to Friday’s GDP numbers to see if growth expanded, though forecast is for a drop.
However, even with the unexpected inflation spike in March, analysts are speculating that that China may lower the cash ratio that banks are required to hold as reserves. Accelerating inflation in March may not dissuade Beijing from the view that price pressures in China are in retreat and that support for a slowing economy is the top priority. A Reuters poll showed economists think Beijing could cut banks’ reserve requirement ratios (RRR) by another 150 basis points before December to 19 percent to encourage banks to lend more to cash-strapped firms.