China’s Surplus Adds Liquidity as Inflation Risks Passing 5%

China’s rebounding trade surplus threatens to make it tougher for policy makers to contain consumer prices forecast to have climbed by the most in 27 months in November, approaching a 5 percent pace.

The excess of exports over imports was $22.9 billion last month, the government said yesterday, the fifth reading this year exceeding $20 billion. The influx of cash from trade has contributed to a 20 percent jump in money supply in the past 12 months, stoking liquidity in the fastest-growing major economy.

The central bank’s third increase in lenders’ reserve ratios in five weeks, announced yesterday, may be insufficient to rein in inflation, Credit Suisse Group AG said ahead of today’s report on consumer prices. The risk to Premier Wen Jiabao’s government of foregoing a rise in interest rates is an erosion of households’ purchasing power that impairs efforts to reduce the nation’s reliance on exports.

Read Full Article from Bloomberg

- Posted: 2010-12-10 13:35:59

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