January 2012 | Steel Raw Materials
An outlook for raw materials prices in 2012: A Chinese perspective.
Early November marked the first fall in the Chinese consumer price inflation index below 5%. This is almost 2% off the July peak and confirms that Beijing’s efforts to rein in increasing prices have had their intended effect. The December figure released tomorrow is expected to be down further, around the 4% mark. However, the double-edged sword characteristics of the contractionary monetary policy applied by Beijing since September 2010 have hampered domestic industrial output.
The Consumer Price Inflation (CPI) index peaked at 6.5% y-o-y in July and is expected to fall to 4% y-o-y in December. Prices are falling as the economy cools; export markets are slowing and the domestic economy is under pressure from months of monetary tightening policies designed to cool the overheated domestic property market. The monetary policies are still working through the system and as a result are continuing to put strain on the economy. In an economy where domestic consumption needs to increase in order to offset reduced exports, readily available credit is a necessity to help grow the share of GDP accounted for by household consumption. In China, household consumption only accounts for 33% of GDP, a far cry from the 70% it accounts for in the US.
The monetary tightening has had knock-on effects in the wider economy; reduced credit availability put the brakes on prices...
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