Consumer price inflation dampened in July

2:00 PM consumer, dampened, inflation, Price No Comments

CNBC Rick Santelli breaks the data on July the consumer price index and the Empire State survey of manufacturing, with David Resler, Nomura Securities Chief Economic Adviser.

Consumer prices were flat in July for a second straight month and the year compared with the previous year was raised the smallest since November 2010, the Federal Reserve room for further monetary loosening to tackle stubbornly high unemployment.

By Reuters respondents economists expected the consumer price index had to rise 0.2 percent last month. In the 12 months to July CPI rose 1.4 percent, the slowdown from June's 1.7% rise, the Labor Department said on Wednesday.

Stripping of food and energy, were also tame inflationary pressures. Core CPI rose 0.1 percent, the smallest increase since February and breaking four consecutive months of 0.2 percent increase.

Economists had expected core CPI increase by 0.2 percent last month. In the 12 months to July, the index, which watched closely, the fed, rose by 2.1% - the smallest increase since October last year. After a 2.2 percent in June.

This measure has from a record low of 0.6 per cent in October and recovered the Fed targets for inflation of 2 percent.

Pressure on prices remains tame despite signs of a pickup in job growth and domestic demand early in the third quarter and the unemployment rate to high, left many economists to further policy loosening likely until the end of the year.

"Slower economy on inflation data, says, that", said Frank Lesh, analyst at FuturePath trading in Chicago.

Other data showed manufacturing activity in New York State fell ill in August for the first time since October 2011.

Officials of the US Federal Reserve meeting on September 12-13 Fed Chairman Ben Bernanke-speech to the Central Bank high-level meeting in Jackson Hole, Wyoming, late August notes to which could offer short-term course of monetary policy.

Bernanke used this forum 2010 to pursue communication, the Fed's intention, a second round of quantitative easing.

U.S. stock index futures held constant at slightly lower levels after the data, while Treasury debt prices reduced losses. The dollar trimmed its gains against the yen and the euro.

Last month, headline inflation was down, to compensate for a gain of 0.1 percent rise in food prices which by a decline in energy prices, 0.3 per cent.

Devastating drought in the country could food prices in the next few months lift will be, but the impact on inflation modest accounts for around 14 percent of the CPI as a food.

Core consumer prices were held back by 0.5% reduction in the cost of used cars and trucks last month. New car prices slipped 0.1 percent after rising 0.2 percent in June.

Modest increases in clothing that were advanced for a fifth straight month. The cost of medical care rose by 0.3 percent after rising 0.7 percent in June.

Owners equivalent rent advanced 0.2 percent in July after gaining 0.1 percent in June.

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Euro zone inflation stays at 3 percent, could delay rate cut

6:01 AM could, delay, inflation, percent, stays No Comments

AppId is over the quota
AppId is over the quota
BRUSSELS — Euro zone inflation was surprisingly high at 3.0 percent for a second straight month in October, the EU announced on Monday, prompting economists to postpone their bets for a central bank rate cut until December.

With Europe's economy cooling, economists had forecast consumer price inflation would fall after reaching a three-year high in September. But high food and oil prices and tax hikes in Italy kept it at the same level.

"It looks a bit like stagflation with negative growth and high inflation," said Peter Vanden Houte, an economist at ING. "That's not positive news."

In a first reading of inflation for the month, the European Union's statistics agency Eurostat said inflation was 3.0 percent in October, compared to a 2.9 percent forecast by a Reuters poll of economists.

Economists had expected the European Central Bank to raise rates as soon as this week to support Europe's economy, as evidence mounts that the region's debt crisis is sapping business confidence and raising the specter of recession.

The Organization for Economic Cooperation and Development slashed its 2012 growth forecast for the euro area to 0.3 percent from 2.0 percent in May.

Underscoring that, Eurostat said the jobless rate in the euro zone rose slightly to 10.2 percent in September from a revised 10.1 percent in August, nudged up by Spain, where unemployment reached 22.6 percent.

But stubbornly high inflation, above the Frankfurt-based central bank's target of close to, but under, 2 percent, is making a rate cut call much more difficult.

"We think interest rates will be on hold this week but we're expecting a rate reduction in December," said Nick Kounis, an economist at ABN AMRO.

Crude oil prices in euro terms were still around a third higher than in the same month last year. ING forecasts that if they continue at current levels, their impact on inflation will not dissipate until March.

MARIO'S MOMENT?

Adding to the cloudy outlook, Mario Draghi takes over as ECB president on Tuesday and may not feel comfortable lowering rates at his first meeting on Thursday, particularly with inflation more than a percentage point above target.

As an Italian at the helm of the ECB, Draghi will arguably be under more scrutiny from skeptical investors worried that a southern European might be less disciplined.

Last week Draghi warned of "a further weakening in growth prospects" but German members of the ECB's Governing Council remain focused on fighting inflation, partly driven by German folk memories of the hyperinflation the 1920s.

German council member Juergen Stark said on October 26 that interest rates at their current level were "adequate."

"The latest euro zone inflation and unemployment data might leave the hawks at the ECB concerned about underlying price pressures," said Jennifer McKeown, an economist at Capital Economics. "The rate has now been above the ECB's 2 percent price stability ceiling for 11 months running, perhaps suggesting that high inflation is becoming entrenched."

Copyright 2011 Thomson Reuters. Click for restrictions.

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China's food created inflation, hungry gourmets

4:44 PM Chinas, created, gourmets, Hungry, inflation No Comments

BEIJING - hunger what such a constant companion in Yao Qizhong's childhood that even now, at age 40, he'll stoop down to salvage a single clove of garlic that if from his table at the Beijing market where he hawks fresh produce.

Life is less harsh these days, but China's fast-rising food prices have hit his family hard, making it increasingly difficult to save for his three kids' education - Yao's main goal.

Across town, Zhong Sheng rinses a still-twitching Mandarin fish and picks the system from a handful of greens as he expounds on his philosophy of grocery shopping. Health and safety are his top concerns, ever since the architect became a father five years ago. Cost is a secondary consideration.

"You can buy cheap stuff," says Zhong as he and his wife cooked together and the smells of soy and scallion filled their cozy kitchen, "but if it makes you sick, you're going to end up paying more anyway in hospital fees."

The starkly contrasting fortunes of the Zhong and Yao families offer a glimpse into how soaring food prices are playing out in the developing world - home to more than three quarters of the globe's 6.9 billion people.

Prosperity and a nearly-growing middle class have cultivated more sophisticated and exotic tastes. Such luxuries as blueberries, avocado, asparagus, and endive, recently unattainable to all but the wealthiest, are now widely available in China's big cities.

But rising affluence has taxed the ability of farmers to meet growing demand while the rural labor pool dwindles. The result: rising food prices hit every level of society, not just those who can afford imported South American bananas or pricey mushrooms and herbs from China's remote Yunnan province. People on low or fixed incomes feel the pinch most.

"We do not dare to try and eat good stuff because we can't afford it," says Yao, whose four grandparents starved to death during China's 1960 famine. Hey what so poor growing up in rural Anhui province that his neighbors assumed he would end up a beggar on the streets.

"If I go to a supermarket," he says, "it's a novelty, like sightseeing."

In China, farm workers have flocked by the millions to factory and service jobs in coastal cities. Luring them back to till and weed by hand is proving a tough sell. The resulting supply pinch helped send food prices up 11.7 percent in March from the year before, adding to months of steep increases.

"You can't find (farm) workers and they're expensive, over a dollar (7 yuan) an hour," said Liu Li, a wholesaler hawking NAPA cabbage and coriander at Beijing's Xinfadi, north China's biggest agricultural distribution center.

People in the countryside want factory work or a job in the service industry, where they'd get to stay indoors and have a warm place to sleep, said Liu. Farm work, she said, is "too dirty and too hard."

Even with sharply higher food prices, Zhong, who runs his own business and has a master's degree from a prestigious Beijing university, can afford to be picky. Besides he sees good reason to favor more expensive organically grown and imported foods after infant formula tainted with an industrial chemical killed six children and sickened 300,000 in China in 2008.

Zhong, his wife and daughter sit down to a typical dinner of steamed fish, two types of greens, mushrooms, pork, rice and sliced apples. Total cost, about 80 yuan ($12). Each month the family spends some 2,000 yuan ($307) on food - about 10 percent of their income.

Yao, who left the countryside more ago, eats like a peasant, filling up on cheap still steamed buns and noodles than two decades and pinching every penny so that he can put his kids through school. For him, meat is a once-a-week treat, though he tries to make sure his children eat it more often.

As a migrant laborer, Yao has been able to skirt China's strict birth limits, having three kids instead of the two most rural families are limited to. But his migrant status means he must pay school fees himself.

A recent and routine lunch Yao and his for wife and children what a bowl of simple noodles with greens. Stall a Yao's ginger and garlic earns him about 2,000 yuan ($307) a month, of which about 600 yuan ($92) goes on food for his five-person family.

"I need to save money but I feel like I am already scraping the bottom of the barrel," he said. "At the same time, I know we have to feed ourselves and eat enough, otherwise our health is going to be affected."

A host of other factors are also blamed for food prices hikes in China and elsewhere in Asia, including too much money sloshing about the economy after stimulus policies that warded off the global recession, rising oil prices and shrinking land for cultivation because of pollution and encroachment by industry.

The U.N. food and Agriculture Office's index of global prices for meat, cereals and dairy foods has surged 37 percent in the first three months of 2011. In many Asian countries, that has translated into a 10 percent increase in local food prices, which the Asian Development Bank estimates is enough to drag people another 64 million below the $1.25 a day poverty line.

Yet the changes in food and work preferences aren't all bad because they reflect the human and economic development taking place in China, said Scott Rozelle, an agricultural economist at Stanford University and an expert on China's food markets.

Rozelle says that China's scattered and small scale farms are becoming more conolidated and mechanized, which could eventualy raise productivity, but the changes probably won't stop food prices from rising. Economic development involves both increases in prices and incomes, he says.

Higher food prices have in fact lifted lagging rural incomes. The per capita net income for rural Chinese grew faster than urban incomes last year, jumping 10 percent to 5,919 yuan ($902).

Rural Chinese are "going from grinding poor to poor," said Rozelle, describing villages he's seen with new brick homes and gravel roads, where all the girls go to school and every family has a mobile phone.

But the changes feel painful for many urban dwellers, particularly retirees, civil servants and migrants, like Yao, whose incomes haven't kept pace. And the discontent that a widening gap between privileged and poor can generate deeply worries China's communist leaders, who are mindful that the anti-government protests that toppled Egypt's government earlier this year were triggered in part by discontent over climbing food costs.

Yao says he envies people who can eat what they like without concern for cost, but tries not to dwell on it.

"Yes, it's unfair," he said. "But I know I just have to keep going." "I have to work hard and it will get better."

Even those benefiting from China's rising prosperity such as Zhong, the Beijing architect, are concerned.

"Their incomes are not rising as of nearly so for them this is difficult," he said. "I think the government needs to find a way to help them raise that sector's incomes too, and take care of them."

Copyright 2011 the associated press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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NYT: China inflation is high risk for world trade

8:36 AM China, inflation, trade, world No Comments

SHANGHAI?? As the United States and Europe struggle to get their economies rolling again, China is having the opposite problem: figuring out how to keep its revved-up growth engine from generating runaway inflation.

The latest sign that things were moving too fast came on Sunday, when China?s central bank ordered the biggest banks to set aside more cash reserves.

The move essentially reduces the amount of money available for loans, and is an attempt to cool down the economy. It follows the government announcement on Friday that China?s economy was growing at an annual rate of 9.7 percent, by far the strongest performance by any of the world?s biggest economies.

Because China is now the world?s second largest economy, after the United States, and because the country has been a leading source of global growth during the last two years, money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.

High inflation endangers China?s status as the low-cost workshop for the world. And if the government?s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses ? whether multinationals like General Electric or copper miners in Chile ? that have been counting on China for growth.

Internal threat
Inside China, inflation also poses a threat to social stability, a particular worry for Beijing, especially since authoritarian governments in North Africa and the Middle East have become the focus of popular uprisings.

?China?s inflation is a big concern, and actual numbers are worse than officially reported,? said Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington.

She says Beijing is engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.

Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4 percent, its sharpest increase in nearly three years. Hoping to tame inflation, in the last six months Beijing has tightened restrictions on bank lending and raised interest rates on loans (to discourage borrowing) and deposits (to encourage savings).

The decision on Sunday to raise the capital reserve ratio for banks, to 20.5 percent of their cash, was the fourth such increase this year.

The government has also increased agricultural subsidies to curb food prices, and tried to forbid some Chinese companies from raising consumer prices. These efforts stand in contrast to those in the United States, where inflation is low (the underlying annual inflation rate was 1.2 percent last month) and where the debate centers on how much to stimulate the economy given the size of the deficit. Inflation is also running low in Europe, where some countries are imposing harsh austerity measures to pare their budget gaps.

But analysts say the results of this economic management have been mixed. Growth has begun to moderate from its torrid pace of about 10 percent annual growth but inflation has become worse.

For example, housing prices continue to climb even though Beijing has long promised to curb the property market and to spend billions of dollars over the next few years on affordable housing.

The average apartment in central Shanghai now costs more than $500,000. Even in second-tier cities like Chengdu, in central China, the price of a typical home costs about 25 times the average annual income of residents.

Analysts say too much of the country?s growth continues to be tied to inflationary spending on real estate development and government investment in roads, railways and other multibillion-dollar infrastructure projects.

In the first quarter of 2011, fixed asset investment ? a broad measure of building activity ? jumped 25 percent from the period a year earlier, and real estate investment soared 37 percent, the government said on Friday.

Some of the inflationary factors, like global commodity and food prices, may be beyond Beijing?s ability to influence. Gasoline prices have also jumped sharply, in line with global oil prices. As the world?s largest car market, China?s demand for fuel is soaring, and gasoline prices are close to $4.50 a gallon, up from $3.82 a gallon in late 2009.

Rising food prices, meanwhile, are showing up in various ways ? including higher prices at fast-food chains, like Master Kong, which in January raised the price of its popular instant noodles by about 10 percent.

Fearing the bubble
China?s current supercharged boom began in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $586 billion stimulus package and record lending by state-run banks.

The loose monetary policy, and big investments in local government projects, did revive economic growth. But even at the time there were already concerns about soaring property prices, undisciplined bank lending and the huge debts being amassed by local governments.

The fear among some experts is that the bubble will eventually burst, leading to a wave of nonperforming loans at the big state-owned Chinese banks, which have been the main financiers of the nation?s phenomenal growth dating to the economic reforms in the 1980s.

Some economists have begun to argue that high inflation may be around for some time. Here again, the tug of war is evident.

To encourage the growth of a consumer market that will help meet the Chinese people?s demand to share the nation?s wealth, Beijing and many municipal governments have required employers to raise wages.

The government has raised minimum wages in the hope of reducing the big income gap between the rich and the poor, and the urban and rural. But higher wages drive up the costs of production, leading to higher prices. Some experts say rising wages may be an unavoidable inflationary force for years to come.

?China is moving into a new era, a new norm,? said Dong Tao, an economist at Credit Suisse in Hong Kong. ?In the previous decade, inflation was about 1.8 percent a year; in the next decade, it may be closer to 5 percent.?

The implications of such a shift are huge, not just for domestic consumers but perhaps even more so for exports. As wages and production costs rise, coastal factories are demanding higher prices for the goods they ship overseas. That means Americans, Europeans and other buyers will have to pay more for those goods or seek lower-cost suppliers elsewhere. In some cases, retailers are bidding for goods at prices the exporters consider too low.

?I hear that many Chinese exporters are rejecting orders from Wal-Mart and other Western retailers,? Mr. Tao said. ?I?ve been covering the Chinese economy for a long time, and I?ve never heard that before.?

'May take a long time'
Many analysts say the government is going to have to do even more to slow the economy, through measures like placing additional restrictions on lending and continuing to raise interest rates, the textbook methods of fighting inflation by tightening the nation?s money supply.

But the mixed results so far do not inspire widespread confidence. In fact, some experts say that despite the Communist Party?s efforts to manage the economy by committee, the absence of a top autonomous central banker ? Beijing has no equivalent of the United States Federal Reserve chairman, Ben S. Bernanke ? means no one actually has a hand on the growth throttle.

?The roots of inflation were laid down after the financial crisis, with the stimulus policy,? said Zhang Weiying, a professor of economics at Peking University.

After a big stimulus, stamping out inflation is not easy, Professor Zhang said. ?It may take a long time.?

Citizens like Wang Jianren, 56, a retiree in Shanghai, a bustling city of 20 million, say that over the years China has benefited from its rapid economic growth. But like so many here, he complains that inflation is beginning to erode those gains.

?Prices have gone up a lot,? Mr. Wang said at an indoor vegetable market on Friday. ?Unstable prices make people nervous and make society unstable. In this sense, our generation even has some nostalgia for Mao?s era.?

Xu Yan contributed research from Shanghai.

This article, "Soaring inflation poses risks beyond China's borders," originally appeared in The New York Times.

Copyright ? 2010 The New York Times

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