Oh-oh! M2 growth is 18.5% and PPI is up – CPI comes out tomorrow
By Michael Pettis
On the National Bureau of statistics website (stats.gov.cn) they have just released the PPI report. For November the cost of manufactured goods rose 4.6% year on year – much higher than expected.The biggest price increases occurred in mining and quarrying (15.1%), the foodstuff component of consumer goods (9.1% – consumer goods overall rose 3.7%), and raw materials industry (6.8%).On their website the PBoC also released money supply and credit information – M2 was up 18.5%, above expectations and well above the PBoC’s target.
Tomorrow we should get CPI inflation numbers and most commentators believe that it will equal or surpass last month’s 6.5%.What is worse we should probably see price rises in far more than the food component, which has been the main source of CPI inflation in the past.This shouldn’t be a surprise. I was never comfortable with the idea that “temporary” increases in food prices could exist without deflationary (or at least disinflationary) pressures on the non-food component of the CPI basket, but inflation in the non-food section, although relatively low, was rising.For surging food prices to co-exist with rising inflation in non-food items has always suggested to me that the inflationary pressures were at least partially structural, and not just cyclical.
By the way there seem to be continued fuel shortages, which suggest that there may be further pressure to raise fuel prices again.
CPI 6.9%, quite scary indeed, further delay of serious tightening of monetary conditions through aggrsssive Rmb appreciation and/or rate hike is getting risky
PBOC Zhou talked about deploying exchange rate policy to tackle balance of payment and emphasizing appreciation on trade weighted basis rather than crawling peg to USD
The 3m rate hike lull since Sept. 15 looked erriely imcomptible with Tight monetary policies , interestingly this coincides with FED easing in Sep.18 and 17th party congress- political reshuffle, what is PBOC rate policies up to ??
a) they are believer of US recession outlook, believe it will take out China export, slow trade surplus and overheating -inflatio risk( it might, however a plunging US dollar-suring oil will crash the game)
b) they are hoping for stronger US growth, US$rebounding and weaker commodities ?? ( this looked very dubious)
c). They are preparing for " Aggressive' Rmb appreciation, not high single digit but probabaly mid-teens in 1H2008. With export poised to slow, further domestic tightenign through rate hike seem too aggressive especially for shaky China property market and consumpiton ??
By isaac - 12/10/2007 11:25 AM
I think they want to get more clarification on the possibility of a US recession. The US economic numbers are not really cooperating and are instead making predictions fiendishly difficult.
By Michael Pettis - 12/10/2007 7:57 PM
I guess the non-bank lending in US probably provide some credits for the economy other than financial industry.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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December, 2007
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