China plans more steps against inflation

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By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) — China’s Cabinet said Wednesday it will take additional action to curb property prices and do what it can to foster stability in commodity prices.

The State Council’s statement came in the wake of a meeting chaired by Premier Wen Jiabao, and shows a renewed determination to rein in property prices. However, the language was consistent with the Cabinet’s earlier-expressed views on the housing market and conforms to China’s policy approach emphasizing the use of administrative measures to cool prices.

The State Council also said local governments should renew efforts to restrain housing prices, adding that combined efforts would result in “firm curbs on rapid property-price increases in some cities,” according to the state-controlled China Daily.

Property prices climbed 0.5% in September from August, the first such month-on-month increase since May.

Consumer inflation rose 3.6% in September from a year earlier, above the government’s full-year target of a 3% rise, though the result was driven less by real-estate than by rising crop prices following a series of natural disasters this year.

Beijing also expressed concern over rising food prices, adding that the government is keen to ensure rural commodity prices remain stable.

The statement made reference to vegetables and food products as “life essentials” and pledged to crack down on hoarding and price collusion involving these products.

“It was not growth but inflation and property prices that dominated Chinese leaders’ latest discussions. Stronger action is thus expected to anchor inflationary expectations,” HSBC analysts said in a note Thursday, referring to the State Council meeting.

HSBC said China will likely hike lending and deposit rates once more this year in a quarter-point move.

International complications

Still, the State Council acknowledged China “faces a very complex international environment and increasing external challenges, which makes macro-tuning more demanding,” according to the China Daily.

The People’s Bank of China echoed those concerns, saying more quantitative easing by major world economies will drive additional gains in prices for staple goods.

The PBOC noted “gradual normalization” of credit and money growth will help stabilize inflationary expectations.

China’s own broad money supply, as measured by M2, grew 19% in September from a year earlier, above its 16.3% average annual rise in the eight-year period to 2008, according to PBOC figures.

The central bank cautioned cooling growth in the second half in Europe, the U.S., Japan and other developed nations is likely to impact negatively on China’s export growth.