Chinese inflation slows, stock market rises

Inflation at 6.2% in August, after 6.5% in July. Prices of pork meat also slow to a steady climb: +45.5% in August after +57% in July. Cautious, but positive reaction on stock market. Expert: Inflation will remain high, structural reforms are needed to avoid middle income families bearing the brunt.

Beijing - Inflation was "only" at 6.2% in August, after 6.5% in July and after months of rising living costs, despite government efforts to contain it. The positive reaction of the Chinese stock market was immediate, driven also by cautious optimism that followed yesterday's speech by U.S. President Barack Obama in the Senate on plans to increase jobs and cut taxes.

For months, Beijing has increased the cost of money (from October, the Central Bank of the People of China has increased the rate of interest five times and the required cash reserves for banks nine times) and allowed a controlled Yuan appreciation to curb inflation, which in July reached a three year record. Measures that contained easy loans, often used for pure speculation, but which have increased the costs of many small and medium-sized businesses, eroding already thin profit margins and leading many to closures.

The figure for August was welcomed but with caution by experts, who consider it "likely" that inflation will remain high in the coming months and almost certainly higher than the target of 4% per annum fixed by the government. In addition, a large amount of money remains in circulation that, with the decline in productive investment, could feed into speculative bubbles.

Xianan Dong, an economist at Peking First Advisory, explains that the easing in inflation is also a consequence of the slowdown in foreign demand for Chinese products, but the anti inflationary measures in place must be maintained, and "in the medium term," structural change like "tax reforms" must be introduced.

Now we wait to see the trend of food prices, which are the most important cost for hundreds of millions of families and which have often unexpectedly increased: in August, food prices rose by 13.4%, compared to 3% of non-food products. The price of pork, which is essential for families, increased by 45.5%, although the growth was 57% in July and June. Analysts fear that the price of pork and other foods that are the basis of Chinese cuisine will continue to grow throughout 2011. Many fear that the cost of the crisis is being paid primarily by the middle class: the bank gives an interest of 3.5%, well below the increase in the cost of living, pushing the small and medium investors to seek refuge in other goods.

However, the data of August brought an immediate cautious optimism to the stock market. At the midday break, the Hong Kong stock exchange had risen by 0.2% and 0.1% in Shanghai, minimum but significant data after the repeated losses of recent weeks and despite signs of crisis that continue to arrive from 'Europe, where yesterday European Central Bank president, Jean-Claude Trichet, warned that "the worst crisis since World War II" is underway and that "uncertainty is very high" in the eurozone and there are "prevailing risks " for growth, estimated at between 1.4 and 1.8% and inflation above 2%.

The good news was also fuelled by Obama's speech to the U.S. Congress yesterday, in which he has announced a package of measures to the tune of 447 billion dollars to boost employment, cut taxes and reduce the public debt. Now experts are waiting to studying the proposals and the reaction of the Parliament.

(AsiaNews)