Bad news overnight on Chinese inflation: Is it out of control?
Bad news on inflation from China last night could give global stock markets the jitters today, March 11.
Higher than expected consumer price inflation in February at an annual rate of 2.7% is likely to revive fears that Beijing will try to slow the speed of economic growth. Economists had expected an increase in inflation of 2.5%, according to a Bloomberg survey. Inflation had dropped in January to an annual 1.5% rate from 1.7% in December.
Chinese stocks fell on the inflation news. The Shanghai Composite Index was down 0.7% as of noon Shanghai time. The index is down 7.6% in 2010.
The jump in the inflation rate to 2.7% is bad news for Chinese officials who have said they aim to hold inflation to 3% or less in 2010. On the current trend inflation will be running above that target by April.
Inflation momentum is also building at the producer price or wholesale level where wholesale prices climbed at an annual 5.4% in February from a 4.3% annual rate in January. Higher prices at the wholesale level almost always lead to higher inflation in consumer prices.
So far government steps to slow bank lending and the growth rate of the money supply have had less effect than projected.
China’s imports soar; good news for the U.S. economy
It quite likely puts off any move to allow its currency to appreciate against the U.S. dollar, but news that China’s imports were up 45% in February 2010 from February 2009 is great news for the still struggling economies of the developed world.
Growth in China’s exports at 46% over the last 12 months wasn’t strong enough to keep China’s trade surplus from shrinking to just $7.6 billion in February. The total trade surplus for January and February was down 50% from the same two months in 2009. (Looking at the two months together eliminates the effect of the changing timing of the weeklong Lunar New Year holiday, which fell in January in 2009 and in February in 2010.
Chinese officials, including Zhou Xiaochuan, governor of the People’s Bank of China, the country’s central bank, have been very clear in recent weeks to link any change in the renminbi/U.S. dollar peg to a sustained recovery in China’s exports. By pegging the currency to the dollar since July 2008, China has given its exporters an edge: when the dollar fell, as it did for most of that period, so did the renminbi, making Chinese goods cheaper to non-dollar, non-renminbi customers.
The good news in rising Chinese imports is that they give a boost to the economic recovery in the United States and Europe.
Update Goldcorp (GG)
What you want in a gold stock is a company with rising reserves and falling costs. Goldcorp’s (GG) end of 2009 report on reserves shows that it’s still delivering rising reserves. We’ll see how the company is doing on costs when it reports after the market closes on March 11.
In 2009, the company said in February reserves grew by 5.3% to 48.8 million ounces from 46.3 million ounces at the end of 2008.
Mr. Bond turns bearish on bonds
Mr. Bond, Pimco’s Bill Gross, doesn’t like bonds so much anymore.
Gross, who manages the $200 billion Total Return Fund at Pacific Investment Management (Pimco) told CNBC on December 7 that Treasuries are over-valued given the odds that inflation and interest rates are headed up.
That wasn’t just talk. Gross increased the cash position in his fund to 7% in November from a negative 7% in October, Bloomberg reported today. (The fund can go to a negative cash position by using derivatives, futures, or short positions.)
That’s the most cash Gross has held since Lehman Brothers collapsed in 2008.
Treasuries have had a tough December, turning in a 1.1% loss for the month so far. That would be the worst monthly performance since April, according to Bank of America’s Merrill Lynch unit.
Right now a little inflation is good news
Inflation? Ever heard of it?
It’s back. Or at least investors can smell the faint whiff of it amidst the seasonal tang of freshly cut Christmas trees.
