Tuesday, February 1, 2011

China PMI points to slowing growth, rising inflation

BEIJING: China's factories slowed a touch in January under the weight of monetary tightening, but input prices rose quickly, keeping the pressure on the government to tackle inflation despite easing growth.

The official purchasing managers' index fell to 52.9 in January from 53.9 in December, the China Federation of Logistics and Purchasing said on Tuesday, Feb 1.

The reading was the lowest in five months and below a median forecast of 53.5 in a Reuters poll.

Input prices jumped to 69.3 from 66.7 in December, suggesting that inflationary pressure was still on the rise.

"This indicates that the economic recovery trend is not yet clear, and we may see economic growth slow down a bit," Zhang Liqun, a government researcher, said in a statement accompanying the release.

"The new export orders sub-index continued to fall while the input prices sub-index went on rising, which suggests that enterprises could face relatively big difficulties in rising costs and slowing demand," he added.

Consumer price inflation in China ran at an annual pace of 4.6 percent in December, slowing slightly from November's 28-month of 5.1 percent.

Many economists believe inflation is set to accelerate again in January due to a spike in food demand and broader consumption ahead of the Chinese Lunar New Year, which begins this week.

To cool prices, China has leaned heavily on administrative measures, raising banks' reserve requirements and also capping their monthly lending.

"This will only reinforce the overriding theme of policy tightening to contain inflationary pressures," said Charlie Lay, economist at Forecast PTE in Singapore.

The inflationary pressures measured in the PMI may actually have been an under-statement. The survey of China-based businesses was likely conducted before the final days of January, when global oil prices spiked because of the unrest in Egypt.

Nevertheless, the official PMI also signalled a sustained period of expansion for the Chinese industrial sector. It is the 23rd straight month that the overall PMI has stood above the threshold of 50 that demarcates expansion from contraction.


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