| Quarterly inflation to jump 2.9% over higher food costs |
SHANGHAI, Feb. 6 -- Higher food prices will likely drive up China's inflation rate this quarter, Goldman Sachs said yesterday.
The US investment bank forecast that the country's consumer price index will spike in the quarter by 2.9 percent and settle out at around 2.4 percent for the entire year.
The CPI rose 1.5 percent last year, buffeted by a 2.8 percent spike in December, the sharpest monthly rise since March 2005.
The Goldman Sachs forecast beat the two percent CPI growth estimate by the central bank and the 1.5 to two percent expected by the Academy of Macroeconomic Research, an affiliate of the National Development and Reform Commission.
"We see the recent pickup in CPI inflation as a lagged reaction to the strong aggregate demand and acceleration in money supply and credit growth in early 2006," Liang Hong, a Goldman Sachs economist, said in yesterday's report.
"While the current momentum will likely be carried into the first quarter, inflationary pressure should quickly ease off, due to the moderation in money supply growth in the second and third quarter, and some potential exchange rate appreciation."
Interest hike
Goldman expects the central bank to raise benchmark interest rates twice in 2007, each by 27 basis points, in the second and third quarter to rein in the money supply.
Meanwhile, the Wall Street bank expects China's economy to expand nine percent this year, slightly below the central bank's 9.8 percent target.
The growth in the country's trade surplus may continue to outpace gross domestic product this year, "bringing increasing external and internal pressure for the Chinese currency to appreciate faster," the report said.
The country's trade gap swelled to a record US$177.5 billion in 2006, jumping 74 percent from the previous year.
The yuan, which closed at 7.7613 against the US dollar yesterday, has gained more than six percent since July 2005, when the central bank abandoned its decade-long fixed exchange rate of 8.28 to the greenback.
Goldman yesterday predicted that the yuan will climb to 7.49 against the US dollar in six months and finish at 7.25 over the next 12 months.
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