Keep in mind that the yearly deposit rate for bank accounts was raised 25 basis points a couple of weeks or so ago to 3%. Combine that with this story and you can see why gold demand from China will remain strong. The reason - REAL rates of return on savings is currently negative. Such an environment is always friendly towards gold.
I also note that apparently the Chinese leaders are taking a page out of the US song book when it comes to playing games with their official inflation statistics.
"Food prices are too high". No problem - just drop some of them out of the inflation index. "There you go - problem solve-ed. Next!"
The Bureau of Statistics ended up cutting the weighting of food by 2.21 percentage points. As the reader is probably aware, they have been rising at an alarming clip. Even at that, it was reported that food prices rose by 10.3% from January a year ago. That compares to last month which showed a rise from 9.6% compared to a year earlier.
I think they need to hire a few of our people from the Bureau of Labor Statistics (BLS) to tutor them on hedonic indexing and rental equivalency. Hey guys - if you're gonna do this, then do it right!
We will continue to monitor this situation as it will have a significant impact on gold demand from that region.
China's Inflation Exceeds Target, Adding Rates Pressure
Inflation exceeded the government’s 2011 target for a fourth straight month in China as prices excluding food rose the most in at least six years, escalating pressure on the central bank to keep raising interest rates.
Consumer prices rose 4.9 percent last month from a year earlier, the statistics bureau said in a statement on its website today. That compared with a 4.6 percent gain in December and the median forecast of 5.4 percent in a Bloomberg News survey of 27 economists. Producer-price inflation accelerated to 6.6 percent from 5.9 percent in December.
A drought in wheat-growing regions, rising global commodity prices and a 53 percent increase in money supply in two years are adding to price pressures in the fastest-growing major economy. Officials may front load policy tightening in the first half of the year as inflation remains elevated, according to economists from JPMorgan Chase & Co. and Morgan Stanley.
http://www.bloomberg.com/news/2011-02-15/china-s-january-consumer-prices-increase-4-9-producer-prices-climb-6-6-.html
Very tight position for the Chinese.
ReplyDeleteThey could let the yuan revaluate and therefore reduce inflation OR they could increase rates and "front load policy tightening". Both solutions are going to reduce growth.
Maybe the third option (cutting the weighting of food or something else later as does (and as been doing for years)the US government) is the best option.... It takes time for the masses to realize what is going on and it gives time to the Chinese authorities to play in the background.