China Inflation Ticking Upwards

China released it's February inflation figures showing that CPI had increased 2.7% year over year in February, against expectations for 2.5%, and the January figure of 1.5%. The figure shows a trend of increasing inflation in China, and may make China's goal of keeping inflation at 3% in 2010 somewhat difficult. The key drivers of inflation include rising commodity prices, artificially low currency, large stimulus spending, loose monetary and credit conditions, as well as generally high inflation expectations.


Given the goals that the Chinese government has around inflation targets this year, and the initial steps taken toward tightening (increasing the Required Reserve Ratio by 50bps twice) it is likely that we will see more tightening in the near term if more data turns out like this.

Sources:
National Bureau of Statistics www.stats.gov.cn Econ Grapher Analytics www.econgrapher.com

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