China data seems to point to slowing growth and higher inflation--but really?

03/11/2013 5:07 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Today global financial markets didn’t quite know how seriously to take data showing a slow down in the Chinese economy. Data released on Saturday showed China’s industrial output growing at a 9.9% rate. That’s the weakest start to a year since 2009 and well below the 10.6% median estimate of economists surveyed by Bloomberg. Retail sales grew by 12.3%, trailing the consensus estimate of economists and the weakest for a January-February period since 2004. (Beijing doesn’t break out individual monthly figures in many data categories for January and February in an effort to compensate for the effects of the timing of the Lunar New Year.) New bank loans fell to 620 billion yuan ($99.6 billion), also lower than economist estimates. Exports exceeded forecasts in February but imports fell more than expected, raising worries that China’s domestic economy is slowing.

But the biggest worry—and the greatest uncertainty—came on the inflation front. Consumer prices rose 3.2% from February 2012. That’s uncomfortably close to the government’s target of 3.5% for 2013. It’s always tough to figure out what the real rate of inflation is in the period around the Lunar New Year holiday when extra buying can cause increases in the prices of many goods. (Check to see next month’s trend in vegetable prices, always an important—and volatile-- inflation component.) But the People’s Bank of China does indeed seem to be moving back to an inflation alert. On March 1 the bank ordered higher down payments on real estate purchases, raised interest rates on some mortgages, and imposed a 20% capital gains tax on some real estate sales. All of that is an effort to head off any further increase in real estate prices.

The uptick in inflation could—if continued—lead to an increase in benchmark interest rates in the last quarter of 2013, according to some economists and analysts. That’s a very minority opinion so far but the fact that it’s an opinion with any following at all is a big change.

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