Inflation fears intensified across Asia on Tuesday as manufacturing data from China, India and other countries suggested that pressure on input prices rose in January amid continued strength in factory output.
Official figures indicated that the pace of expansion slowed slightly in China, where the state-approved purchasing managers’ index fell from its December high, reflecting the impact of a tightening of monetary policy since Chinese inflation peaked in November.
However, the index showed growth in factory activity for the 23rd consecutive month, underlining the robust nature of China’s manufacturing expansion. The sub-index recording input prices jumped to a fresh high.
“The new export orders sub-index continued to fall while the input prices sub-index went on rising, which suggests that enterprises could face relatively big difficulties in rising costs and slowing demand,” said Zhang Liqun, a government researcher, in a statement accompanying the release of the numbers by the China Federation of Logistics and Purchasing.
Adding to the impression of continuing manufacturing strength, there was also a rise in the unofficial but closely watched PMI index produced by HSBC and Markit, the economics consultancy, with the detailed numbers suggesting an increase in capacity pressures.
Hongbin Qu, HSBC’s chief China economist, said the upbeat numbers would give Beijing room “to fully focus on checking liquidity and inflation pressures”. Mr Qu said China’s central bank would probably use quantitative tightening in the form of an increase in banks’ reserve requirements rather than raising interest rates.
China’s inflation index fell slightly to 4.6 per cent in December, from a 28-month high of 5.1 per cent in November, in the wake of two interest rate rises and a series of administrative measures taken by Beijing to cool the economy.
However, some economists expect inflation to accelerate again in January in response to a global rise in food and energy prices, combined with a spike in demand caused by the Lunar New Year holiday this week.
In an indication of the spread of inflationary pressure around the region, Indonesia on Tuesday reported that consumer prices rose 7.02 per cent year on year in January, up from 6.96 per cent in the previous month and above consensus expectations. However, core inflation was lower than expected at 4.2 per cent, presenting the central bank with a difficult decision on whether to raise interest rates when it meets on Friday.
HSBC’s India Manufacturing PMI posted a small rise, with the details showing a big backlog of work and a substantial jump in input prices. Leif Eskesen, the bank’s India chief economist, said the strong numbers underlined the country’s robust growth, but would also give companies more leeway to pass on price rises.
“Inflation pressures are coming from all sides, demand and supply, and international commodity prices are now adding to the challenge,” Mr Eskesen said.
“The Reserve Bank of India [has] already prepared the ground for more rate hikes near term with their latest policy statement, and we expect they will deliver, [probably] as soon as March, with another 25 basis points.”
Factory activity was also strong in January in South Korea, Taiwan and Japan, with very strong economic growth figures in Taiwan for the fourth quarter of 2010 adding to the overall picture of rising inflationary pressures.
The Taiwanese Statistics Bureau said in a preliminary estimate on Tuesday that the economy expanded by 6.48 per cent in the three months to the end of December compared with the same period in 2009, after rising 9.8 per cent in the third quarter.
The strength of the economy prompted the government to raise its estimate of GDP growth for 2010 to 10.47 per cent. It raised its growth forecast for 2011 to 5.03 per cent, up from a November estimate of 4.51 per cent. It also raised its inflation forecast for this year to 2.04 per cent from 1.85 per cent.
The PMI and GDP data followed strong industrial output numbers released on Monday for Japan – often a laggard in manufacturing recently – which showed the country’s manufacturing activity expanding in January for the first time in five months.
Source: http://www.ft.com
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