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By HaleStewart October 14, 2013 8:44 am
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Chinese Inflation Comes in Higher Than Desired

Yesterday, the Chinese National Statistics Bureau reported the following regarding inflation:

In September, the consumer price index (CPI) went up by 3.1 percent year-on-year. The prices grew by 3.0 percent in cities and 3.3 percent in rural areas. The food prices went up by 6.1 percent, while the non-food prices increased by 1.6 percent. The prices of consumer goods went up by 3.1 percent and the prices of services grew by 2.9 percent. On average from January to September, the overall consumer prices were up by 2.5 percent over the same period of the previous year.

Reuters reported the data thusly:

China's annual consumer inflation rate rose to a seven-month high of 3.1 percent in September as poor weather drove up food prices, limiting the scope for the central bank to maneuver to support the economy even as exports showed a surprise decline.

But few analysts expect a further sharp rise in inflation or policy tightening in coming months as the world's second-largest economy still faces a weak global environment and Beijing tries to tap the brake on credit-fuelled investment.

The good news in the above numbers is that inflation is usually caused by economic growth; hence, one can deduce the Chinese economy is again on a strong growth track.  But, the year over year rate of change has increased a full percentage point since March, when the year over year rate increased at 2.1%.  What's important to remember is the People's Bank of China is one of the most aggressive central banks in the world; they are far more likely to raise a variety of interest rates at their disposal or engage in other less conventional measures to fine tune the growth picture.

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