The sharp increase in China’s inflation rate in the year to March has had an immediate impact with the Government again lifting the reserve asset ratio for banks to a new high.
China’s central bank said it was raising the reserves that commercial banks must deposit with the central bank to 20.5%, an increase of 0.50%, with effect from April 21.
It is the 4th increase in the ratio this year and the eight since the process started at the start of last year.
China has also increased interest rates four times, twice this year.
Economists said that a combination of the unexpected rise in inflation and the maturation of a large amount of central bank bonds (which would have pumped more liquidity into the banking system) promoted the rise in the ratio.
Earlier China imposed strict price controls after the CPI report on Friday.
Inflation at 5.4%, was the highest level in 32 months.
Indian inflation surged to 9% and the 2.7% rise in prices in the eurozone took markets by surprise, especially when the EU rate as a whole hit 3% with the 4% reading from the UK factored in.
The rise in Chinese consumer prices was accompanied by a 7.3% rise in producer prices for the month from a year earlier, up slightly from February’s 7.2% increase.
Food accounted for most of the increase, rising 11.7% over the period. That was up from 11% in February, 10.3% in January and 9.6% in December.
Prices rose 4.9% in cities and 5.5% in rural areas. Housing prices overall were up 6.5%.
Month on month inflation fell 0.2% in March from February, which was a small positive overlooked in many of the commentaries.
China’s economy grew at an annual pace of 9.7% from a year earlier in the first three months of the year, the National Bureau of Statistics said Friday. That was slightly slower than the 9.8% rate in the December quarter.
On a quarter on quarter basis, growth rose 2.1% (China has started producing quarter on quarter growth figures for the first time) which shows growth remains strong, but could be slowing.
The AMP’s Chief economist Dr Shane Oliver said the key theme from Chinese economic data for March "is one of normalisation after the post GFC boom".
"GDP growth over the year to the March quarter came in at 9.7% pace, but this is well down from the 11.9% growth rate recorded over the year to the March quarter last year.
"It also implies a slowdown in the sequential annualised quarterly growth rate to around 9%, which is probably sustainable on a medium term basis.
"And money supply and loan growth has slowed back to the pace that prevailed prior to the GFC.
"While annual inflation rose to 5.4% in March, softening food prices and the cooling in GDP and money supply growth suggest that it is likely close to peaking.
" So while further monetary tightening is likely, the monetary tightening cycle is probably close to an end.
"The key message is that the Chinese economy is on track for a soft landing.
"This is good news for Australia, because a Chinese soft landing will be good for ongoing commodity demand, albeit at a more sustainable pace," he wrote in a note released late Friday.
The Chinese government knew the high reading for inflation was coming.
It imposed strict price controls on basic consumer items ahead of the announcement and let it be known Friday that it will allow faster appreciation of its currency in the coming months after annual inflation in the country reached its highest level in nearly three years in March.
In a speech on Wednesday of last week (and reported on Friday, after the data was released) to the governing State Council, Chinese Premier Wen Jiabao said Beijing would, along with other policy measures, “further improve the yuan exchange rate mechanism and increase yuan exchange rate flexibility to eliminate inflationary monetary conditions”.
That is a small, but significant change. Since the peg was removed from the currency in June of last year, the Yuan is up 4.5% against the US dollar.
Industrial production climbed 14.8% in March, up from the 14.1% rise in January-February, in a sign that efforts to rein in growth haven’t been wholly ineffective.
In other data, retail sales for March also beat expectations, rising 17.4% from the year-ago period, while urban fixed-asset investment for the January-to-March period increased 25%, up from a 24.7% expansion in the prior quarter.
Chinese banks handed out Rmb680bn ($A102bn) in new loans in March, up from Rmb536bn in February, despite several increases in reserve requirements and interest rates over that period.
China’s electricity consumption rose 13.41% over the previous year in March to 388.8 billion kilowatt hours (kWh), increasing the first quarter power consumption to 1.09 trillion kWh, up 12.72% from last year, the National Energy Administration (NEA) said.
China’s gas apparent consumption reached 33.3 billion cubic meters between January and March, up 20.8% on year, it said.
The nation produced 27.4 billion cubic meters of natural gas in the first quarter, a rise of 12.1% year on year, the National Bureau of Statistics said earlier Friday.
The two most important monthly production figures are for steel and oil.
The National Statistics Bureau reported a 9% rise in steel production in March from a year earlier to 59.42 million tonnes.
That left steel production up 8.7% for the quarter at 169.9 million tonnes.
Oil production rose 4.2% to 17.57 million tonnes in March and was up 6.7% at 51.36 million tonnes for the quarter.
