lets get our head around valuation, page-17

KONG (MarketWatch) — Consumer prices in China rose to a seven-month high in December as chilly weather conditions affected transportation and boosted the cost of food items, according to data released Friday.

The consumer price index (CPI) climbed 2.5% from the year-earlier month in December, accelerating from a 2% increase in the preceding month, according to figures from the National Bureau of Statistics.

Food prices, which have a nearly one-third weighting in the index, rose 4.2% during the month, with fresh vegetable prices soaring 14.8% and the price of eggs climbing 8.7% from the same month a year ago.

Non-food prices rose 1.7%.

Analysts at IHS Global Insight said concerns of an earlier-than-expected tightening of monetary policy in response to Friday’s surprise inflation result were misplaced, as Chinese policy makers would likely view the cost surge as a weather-related aberration.

“The bulk of inflation comes from food prices which are surging due to supply issues and the coldest winter China has seen in around 30 years. Indeed, a full 1.4 percentage points of the 2.5% headline inflation gains were caused directly by food-price rises,” IHS analysts Alistair Thornton and Xianfang Ren said in a note.

Nevertheless, IHS described December’s month-on-month gain in food as “staggering,” noting that prices were increasing 33% on an annualized basis.


December’s CPI level marked the highest increase in consumer prices since a 3% advance in May, according to FactSet data.

But the producer price index (PPI), a measure of wholesale prices, dropped at a more-than-expected rate of 1.9% from its level in December 2011, following a 2.8% fall in November.

Economists surveyed by Dow Jones Newswires had estimated a 2.4% increase in the CPI, with food prices seen climbing 1.9%. The same survey tipped a 1.8% drop in PPI.


Ting Lu, a China economist at Bank of America Merrill Lynch, said the impact from the higher-than-expected reading was likely to be limited, as the December CPI was still below the government’s inflation target of 3.5%.

“We also believe government policies won’t be swayed by the December inflation data. To a large extent, CPI inflation was normalized in December from lows in the previous months, as vegetable prices rebounded to normal levels,” he said.

While IHS’s Thornton and Ren agreed that the policy fallout from the inflation numbers was limited, they saw greater risk further down the road.

“If property prices continue unconstrained, the likelihood for an interest rate increase towards the back of the year will certainly rise, although authorities have demonstrated a clear preference for administrative measures,” they said.



Good for Gold price uptrend....