China’s manufacturing sector expanded at the slowest pace in six months as higher interest rates and lending curbs aimed at containing inflation damped demand.
The Purchasing Managers’ Index fell to 52.2 from 52.9 in January, the China Federation of Logistics and Purchasing said on its website today, the third monthly decline. The gauge of input prices climbed to 70.1, the highest level since November.
Premier Wen Jiabao pledged on February 27 to contain gains in consumer prices and tackle surging property prices that could threaten social stability in the world’s most populous nation. Wen may outline additional measures to tame inflation and cool economic growth when he opens the annual session of the National People’s Congress later this week.
“This is a good number, suggesting Beijing’s policy tightening is starting to cool excessive growth and inflation,” said Qu Hongbin, Hong Kong-based economist at HSBC Holdings. The government “still needs to step up measures to combat inflation in the months ahead,” he added, predicting the central bank will raise interest rates and banks’ required reserve ratios further.
The benchmark Shanghai Composite Index rose 0.5 per cent to close at 2,919 today, while remaining down about 7 per cent from a November 11 high amid concern that monetary tightening will hurt earnings in the world’s fastest-growing major economy. The yuan rose 0.02 per cent in Shanghai to 6.5703, according to China Foreign Exchange Trade System in Shanghai.
Oil prices
“Cost-driven inflation pressure is still large,” the logistics federation said in a statement today accompanying the data release. “Upward pressure on the CPI is still significant,” the federation said, citing a drought in China that’s boosted food prices, the impact of West Asia turmoil on oil and liquidity injections by the US Federal Reserve.
In contrast with China, India’s manufacturing grew at the fastest pace in three months, a survey by HSBC and Markit Economics on Tuesday showed, adding to pressure on the central bank to increase interest rates for the eighth time in a year.
In the US, the Institute for Supply Management’s manufacturing index rose last month to 61, the highest since May 2004, from January’s 60.8, according to the median estimate in a Bloomberg News survey of 77 analysts. A German manufacturing index, also expected today, is forecast to have held at 62.6, according to the average estimate of 19 economists.
China raised gasoline and diesel prices on February 20 by as much as 4.6 per cent after crude oil in London rose above $100 a barrel. The government previously increased costs on December 22.
Consumer-price inflation may have cooled to 4.8 per cent in February from 4.9 per cent in January, China International Capital and Shenyin & Wanguo Securities said on February 25. Still, non-food inflation rose to the highest in at least six years in January.
