China PBOC Sounds Inflation Alarm Says CPI To Rise In Q4

China PBOC Sounds Inflation Alarm Says CPI To Rise In Q4

BEIJING (MNI) – The People’s Bank of China sounded an inflation warning Tuesday, saying that consumer prices are likely to rise further in the fourth quarter and that this will anchor inflation expectations.

The bank’s third quarter monetary policy report delivered another raft of hawkish commentary from the authorities following a speech from Premier Li Keqiang which effectively ruled out adding any more cash to the system because “there is too much money in the pool.”

The PBOC said in the report that the foundation for price stability is “not solid” and warned of the need to stabilize inflation expectations.

The National Bureau of Statistics is expected to announce this Saturday that consumer inflation ticked up to 3.3% y/y in October, up from 3.1% in September and just 2% at the start of 2013.

China PBOC Sounds Inflation Alarm Says CPI To Rise In Q4

The PBOC said consumer inflation is likely to continue rising through the fourth quarter of 2013 and will fuel inflation expectations.

“Upwards pressure on prices still exists,” the bank said, a sentence absent from its second quarter report.

“We can’t be blindly optimistic about the price outlook,” the central bank said, reiterating the government’s official “prudent” monetary policy stance.

Li said in a speech circulated earlier Tuesday that the government needs to keep the economy within a range of 7.5% growth and 3.5% consumer price inflation.

Money market rates remained at recent elevated levels through the trading day on the premier’s comments, with traders warning that the government is shifting away from its summer policy focus of supporting growth.

Despite the bank’s inflation warnings, it said economic growth will remain stable, dismissing concerns about any significant impact from the start of the Federal Reserve’s anticipated exit from quantitative easing on the Asia region.

The PBOC warned again that some commercial banks are continuing to abuse the system in a hunt for deposits in the interbank market and said it will continue to press on financial institutions not to over-leverage themselves.

It also said the economy may undergo a “long-term process of deleveraging”, warning of the problems posed by debt associated with local governments and the housing market.

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