China Economic Growth Cools, Inflation Rises

Another interest rate hike is unlikely at present

China’s economic growth in the third quarter hit 9.6%, down from 10.3% in the second quarter, according to figures released Thursday by its National Bureau of Statistics. Economists, according to a report in the International Business Times, expected a growth rate of 9.5%. At the same time, consumer prices rose 3.6% in September from the previous year.

China had surprised everyone with an interest rate increase on Tuesday, the first in three years, from 5.31% to 5.56%. It also increased the rate on deposits from 2.25% to 2.5%. This was seen as a move to ward off excessive liquidity and inflation.

However, in a report from Reuters, there was speculation that China was pretty much where it wanted to be at present and any further currency moves might be a hard sell. The G20 finance ministers’ meeting, scheduled in South Korea on Friday, was expected to be the scene of a push by the U.S. and other nations for a stronger yuan.

In the Reuters report, Ben Simpfendorfer, an economist with RBS in Hong Kong, was quoted as saying, "The window for large yuan gains is closing fast. Export growth is slowing and, assuming the current trend is sustained, year-ago growth is on track to fall well below 10%." In fact, since the end of August, the yuan appreciated 2.36%, the fastest rate since it was revalued in 2005.

Inflation at 3.6% was at a 23-month high, but if food is excluded, the rate of inflation actually slowed. Food appreciated at an annual rate of 8% since last September; non-food inflation dropped from 1.5% last year to 1.4% in 2010. Food prices, it was noted, are still on the increase, although that may be slowing; China’s report noted that both grain and meat production was up, with “another bumper harvest” expected.

Industrial output, at its slowest in 13 months, missed forecasts and came in at 13.3% YOY, when it was expected to hit 13.6%. China’s trade surplus for the first three quarters of 2010 hit $2.15 billion, an increase of 38%. Domestic retail sales of consumer goods were up 18.3% YOY.

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