China's rising meat prices to push CPI inflation over 4 pct soon - Goldman Sachs |
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Fri, 25 May 2007 04:42
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BEIJING (XFN-ASIA) - Rising meat prices in China are likely to push inflation above four pct soon which should prompt the central bank to hike interest rates at least two more times this year, Goldman Sachs said.'The surge in pork prices will likely push year-on-year CPI inflation to above four pct very soon,' Goldman Sachs said in a note.It said meat prices have surged in a number of major cities in China since early May, starting with pork but also affectin other meat products such as poultry and beef.Meat constitutes about seven pct of the CPI basket, the brokerage said.'Therefore, inflation in this food category alone is likely to drive year-on-year CPI inflation to four pct and above in the coming months,' Goldman Sachs economist Liang Hong said in the note.This will likely intensify pressure on the central bank to raise interest rates again, the note said.China's real deposit rates remain negative despite last Friday's 27 basis point hike by the central bank, and any additional pickup in inflation will push the real return for bank deposits further into negative territory, Liang said.'If left unaddressed, such negative real rates would add more fuel to asset inflation in the domestic equity market, and will also dent the central bank's credibility,' she added.Goldman Sachs expects two more 27 basis points rate hikes in the second or third quarter this year.The brokerage said it has raised its 2007 and 2008 CPI inflation forecasts to 3.6 pct and 2.6 pct, from 2.6 pct and 1.8 pct, respectively.will.davies@afxasia.com
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China FAI growth to accelerate, prompt monetary tightening - Goldman 