CSFB： 如果CPI 到8%,其他投行 评论

China Economics --What if inflation hits 8%?

● We believe both the government and the market have
underestimated the magnitude of inflation. Food inflation may
surge further, while wage inflation among migrant workers is
spilling from the manufacturing to the service sector
● We now project CPI inflation to hit 6.5% yoy around mid 2008,
with a possibility of reaching 8%. Real interest rates are set to
move deeply into negative territory.
● Our central case is deposit rates going up 189 bps (to 5.22%pa)
and lending rates up 135 bps (to 8.19%pa) by the end of 2008.
Should CPI hit 8%, we look for additional 150bps hikes. We also
revised our GDP growth forecasts up to 11.5% yoy for 2007 and
down to 10.4% for 2008.
● China has exported inflation to the US for two consecutive
months. We think China’s role as a major source of global
disinflation may have come to an end.
China’s inflation is getting out of control and the government is behind
the curve, in our opinion. The biggest contribution to rising inflation
comes from foods, which counted for 78% of China’s 3.2% average
inflation in H107. We think food inflation will rise further over the next
12 months. The autumn crop, which counts for four-fifths of total
annual grain production, is expected to be weak, caused by the worst
flooding since 2003 that is currently sweeping the nation. Further, the
shortfall in hog production will not be reversed quickly. Moreover,
wage rate among the migrant workers is rising quickly as the labour
shortage for migrant workers is spreading from the manufacturing
sector to the services sector. Besides, rents and transportation