CHINA TRYING TO COOL ECONOMY, FIGHT INFLATION

Many observers had wondered for years how China's economy could grow at 10+% per year and yet only encounter minimal inflation. Some suspected, and many still suspect, that the Chinese have simply underreported inflationary data. Others think that while China may have actually enjoyed low inflation in the past, that the country now will have to grapple with rapidly rising inflation. What is clear, is that China is now trying to slow the economy and fight inflation.

From USA Today:

China's central bank said Saturday it was boosting the amount of money that its banks must hold in reserve for the eighth time this year, reducing the amount available for lending in an effort to cool an investment boom.

The bank said in a statement on its website that it had raised the rate by half a percentage point to 13% to "strengthen liquidity management in the banking system and check the excessive credit growth."

The change takes effect Oct. 25, the People's Bank of China said.

The order, which had been expected by industry analysts, comes on top of repeated interest rate hikes and investment curbs imposed on real estate, auto manufacturing and other industries in an effort to cool a boom that Chinese leaders worry could ignite inflation or a financial crisis.

The rate rise also follows the recent release of government figures on inflation.

The inflation rate jumped 6.5% in August — its highest monthly rate in 11 years — propelled by a double-digit rise in food prices, including pork, the country's staple meat.

That follows a rise in consumer prices in July of 5.6% over the same month last year.

The central bank has already said it expects the inflation rate for the year to exceed the government's 3% target.

China announced on Friday that the trade surplus, a key source of domestic liquidity, remained high at US$23.91 billion in September.

The last reserve ratio hike took effect Sept. 25.