Eco Analysis - China's stubborn housing inflation risks further policy tightening (W. Yao)

Eco Analysis - China's stubborn housing inflation risks further policy tightening (W. Yao)

China January housing inflation accelerated to the fastest pace since early 2011. This report justifies Beijing's renewed hawkishness on the housing market. Further acceleration of housing inflation will most likely trigger more policy tightening. Meanwhile, RBA Governor Stevens sounded rather upbeat on the economy in testimony to Parliament, and rather disinclined to cut rates in the short term. Key points were that there is a good deal of stimulus in the pipeline from previous easing, and that the high A$ has been a key factor in the current low rate setting. In response, the A$ strengthened nearly 1c and short-term rates rose.

■ China property prices continued to accelerate in January.

On average, housing inflation in both the primary and secondary markets have risen for five months in a row and quickened to the fastest pace since early 2011.

New home prices advanced by 0.54% m/m in the 70 major cities surveyed by the National Bureau of Statistics, quickening from 0.31% m/m in December; and second-hand housing inflation accelerated to 0.24% m/m from 0.16% m/m. The number of cities that experienced inflation of 0.5% m/m or more jumped to 32 in January from 13 in the previous month. First-tier cities led the pack, with Shenzhen up 2.2%, Guangzhou 2%, Beijing 1.6% and Shanghai 1.1%. Cumulatively, prices in more than half of the 70 cities have fully recovered from the downturn in 2011/12 and reached new peaks.

This report justifies the central government's renewed hawkishness on the housing market. Further acceleration of housing inflation will most likely trigger more policy tightening. As signalled by the State Council earlier this week, several measures, notably imposing home purchase restrictions on more cities and expanding the property tax trial, are already under consideration. Stubborn housing inflation risks sooner-than-anticipated monetary policy tightening as well, a factor of more serious concern to the economy at large and specifically to the domestic equity market.

Wei YAO

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