Not so long ago, China’s office for national statistics reported that Chinese consumer prices increased only by 1.8% in July 2012, which is -0.4% as opposed to June’s figures. Services appreciated by 2% while non-food products appreciated by 1.5%. The CPI increased by 1.9% and 1.5% for big cities and rural areas correspondingly.
What does the CPI slowdown mean ton investors and what are the reasons for the slowdown?
If to consider the entire structure of the index, we will see that food constituents are bearish. Manufacturing constituents are bearish as well, thus hindering inflation. All this gives the People’s Bank of China a lot of space for maneuvers in terms of monetary policy.
If the economic slowdown in China continues, the central bank will have to stimulate the economy further. This will be a bullish sign for capital markets, including gold and other commodities.
China Aims At Social Stability
China seems to have abandoned its efforts to accelerate the pace of its economic growth in favor of social stability. Wen Jiabao announced China’s goals for the next 5 years during the recent nationwide meeting. Experts are worried that without efficient measures and control, the rate of inflation may reach 10% by the end of 2012.
At the same time, the Prime Minister assumes that the Chinese government just cannot let consumer inflation affect Chinese households with low income. The rate of consumer inflation shouldn’t exceed 4%.
Analysts say that housing and consumer prices are a major headache for the Chinese authorities. Yet, this problem won’t be easy to solve.
Another problem is the gap between the rich and the poor.
Have China Succeeded In Fighting Consumer Inflation?
So far, China has made considerable progress in fighting consumer inflation. Despite the fact that the CPI grew a bit last month, experts say the bearish tendency will last at least till the end of the year.
However, the anti-inflation efforts keep hindering the GDP growth. It grew only by 7.6% in Q2 2012, though better than expected by analysts. Lower export is one of the major reasons for the GDP slowdown.
Forex.
The Chinese Yuan has strengthened a bit against the US Dollar of the last few days. experts report that after completing a rally, USDCNY is forming a bearish move represented by а(С)/С.
In general, the Chinese economy is relatively stable. No major changes are expected till the end of 2012. Stability is the key to success.
