International | Apr 19 2006
China has recorded an increase in GDP in the March quarter of 10.2%, a figure that shows growth is accelerating despite the best efforts of the government to keep it under control.
While this is providing support to commodity markets given the Chinese have been major importers of the raw materials needed to fuel this growth, it also increases the risk of overheating in some sectors of the economy. As an example, Shanghai property prices are again moving higher after a short period of consolidation.
AS DBS points out, asset inflation is now becoming a more important issue for the Chinese as while the headline inflation rate remains relatively low it is expected to rise, particularly as problems such as bottlenecks in the energy sector have yet to be fully resolved.
While some reforms to the previous pricing system for energy assets have been put in place in attempts to take the heat out of the sector, DBS suggests the pressure remains and is likely to flow through into higher electricity and water prices in coming months.
This, along with the increases already experienced in gasoline, diesel, oil and coal, puts inflation at risk of hitting the government’s target of 3%, which leads DBS to predict there is now a greater chance the central bank will be forced to increase official interest rates in the second half of this year.
