China has posted reassuringly-solid gross domestic product figures for the first quarter, but the more interesting read comes from inflation.
GDP grew 11.9% on the year, a little higher than economists had expected but largely in line with the view the country’s impressive recovery has legs.
Indeed, the focus of late has turned more to potential bubbles and associated risks as growth picks up. That’s where Thursday’s inflation data for March come in.
The consumer price index rose 2.4%, slower than February’s 2.7% rise and below market expectations for a 2.6% increase.
To some extent that’s a bit of a blip, and prices should remain pressured up by higher food and fuel costs. Authorities continue to warn about the need to be on guard against imported inflation pressures from rising commodity prices.
But the data may also give Beijing a bit more space to stick to targeted steps to curb liquidity and limit bubbles in sectors like real estate (which admittedly is a worry, with urban property prices growing at the fastest pace in close to five years in March and the State Council saying Thursday it will “resolutely curb” excessive property price rises), rather than doing something more broad and aggressive like raise interest rates.
Rates are a pretty blunt tool for a country needing to pull on the reins in some areas, while continuing to give other sectors a helping hand.
Indeed, Li Xiaochao, spokesman for the National Bureau of Statistics, said Thursday the CPI is basically stable. Economic growth that hasn’t yet ignited a major inflation fire is a good outcome for the first quarter.
It could be the People’s Bank of China can hold off on monetary tightening until the second half of the year.
The key question is how pre-emptive authorities want to be.
Hike rates in the next few months to keep inflation at bay, and it could slow the economy more than Beijing wants. Leave rates alone until late this year, in order to support the recovery, and inflation could become a real problem.
The solution probably lies somewhere in the middle.