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Inflation fears as Asian manufacturing stays strong

Chinese manufacturing growth slows in January
Shanghai (AFP) Feb 1, 2011 - Manufacturing growth in China slowed in January, official figures released Tuesday showed, but rising input costs signalled Beijing has not yet tamed inflation. The country's Purchasing Managers Index fell to 52.9 in January from 53.9 in December, the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics, said in a statement. A figure above 50 indicates expansion in China's vast manufacturing sector while a figure below 50 represents contraction.

However, an independent seasonally adjusted PMI reading released by HSBC bank indicated manufacturing activity stayed relatively stable in January at 54.5, up slightly from 54.4 in December. Economists said the figures would likely prompt Chinese policymakers to continue focusing on fighting consumer inflation, which eased in December from the previous month but remained stubbornly high at 4.6 percent. The official PMI's input price subindex rose to 69.3 from 66.7, pointing to growing upward pressure on costs that were already at high levels, said Brian Jackson, a senior strategist at Royal Bank of Canada.

"This provides a further reason to think that headline inflation is likely to pick up in the next few months, and will strengthen the case for further policy moves over 2011, including rate hikes and a faster pace of currency appreciation," Jackson said. China has raised the reserve requirement ratio -- the amount of money lenders must keep in reserve -- seven times in 2010, and raised benchmark lending and deposit rates twice in the fourth quarter. Officials and economists have warned China's inflation risks will remain high in the first quarter of 2011 despite the December slowdown.
by Staff Writers
Beijing (AFP) Feb 1, 2011
Manufacturing in China and India remained strong in January, while rising input prices have stoked fears that inflation in developing economies has not been tamed, a survey by HSBC showed Tuesday.

Surging prices for oil, copper, wheat and other commodities has fuelled inflation across Asia, forcing central banks in China, India, South Korea, Taiwan and Thailand to hike interest rates.

HSBC's seasonally adjusted PMI, or purchasing managers index, showed China's manufacturing activity in January rose to 54.5 from 54.4 in December.

But an official survey released by the China Federation of Logistics and Purchasing showed activity slipped to a still-robust 52.9 in January from 53.9 in December.

In India factories cranked up production, with the purchasing managers index rising to 56.8 in January from 56.7 in December, according to HSBC.

A figure above 50 indicates expansion in the manufacturing sector while a figure below 50 represents contraction.

The HSBC and Chinese government surveys showed inflationary pressures were building across Asia and analysts said further rate hikes would be needed to bring prices under control.

The official Chinese PMI's input price subindex rose to 69.3 from 66.7, pointing to growing upward pressure on costs that were already at high levels, said Brian Jackson, a senior strategist at Royal Bank of Canada.

"This provides a further reason to think that headline inflation is likely to pick up in the next few months, and will strengthen the case for further policy moves over 2011, including rate hikes and a faster pace of currency appreciation," Jackson said.

China has raised the reserve requirement ratio -- the amount of money lenders must keep in reserve -- seven times in the past 12 months, and raised benchmark lending and deposit rates twice in the fourth quarter.

Officials and economists have warned China's inflation risks will remain high in the first quarter of 2011 despite the December slowdown.

Input price inflation across India's manufacturing industry also rose in January.

India last week hiked interest rates to their highest since early 2008, joining South Korea and Thailand, as governments across the region become more unsettled by the possible destabilising effects of high inflation.

Annual Indian inflation surged in December to 8.43 percent, up nearly a percentage point from the previous month, stoked by a surge in food prices.

"Monetary policy has a role to play in preventing elevated food prices from spilling over into broader inflationary pressures," said Matt Robinson, a senior economist at Moody's Analytics.

But he warned such measures also "dampen economic growth and investment, lessening prospects for increasing living standards and reducing poverty."

Elsewhere in Asia, South Korea's manufacturing activity fell slightly to 53.5 in January from December's 53.9, HSBC said.

Australia's manufacturing sector improved moderately in January, though the industry remains sluggish due to a high local currency and soft domestic demand, Dow Jones Newswires reported.

The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index rose to 46.7 in January, up 0.4 points from December.



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