China raises reserve requirement

Yesterday, China announced that it is continuing its efforts to slow the economy down. Xinhua Online reports:

The required reserve ratio for financial institutions engaging in deposit business will be raised by 0.5 percentage points from Feb. 25 to 10 percent, the second hike in two straight months, sources with China's central bank said here on Friday.

This move comes as property prices continue to climb in China.

Housing prices in 70 large and medium-sized cities rose an average of 5.6 percent year on year in January, 0.2 percent faster than December last year, the country's top planner, the National Development and Reform Commission (NDRC), said yesterday.

The rest of the global economy may need less prodding to cool if yesterday's data were any indication.

Reuters reports the US data.

U.S. home construction fell sharply last month while producer prices moderated, according to government data on Friday that lent weight to expectations the Federal Reserve will lower interest rates later this year.

A poll of consumer sentiment also dipped, although the decline in February of the Reuters/University of Michigan Surveys of Consumers, to 93.3 from a two-year high of 96.9 last month, had not been as steep as some had feared...

The Commerce Department said the pace of U.S. home construction shrank 14.3 percent in January, the sharpest drop since October that bucks two months of increases and was much worse than economists had expected...

Housing starts clocked an annual pace of 1.408 million units in January compared to 1.643 million units in December. Economists had forecast January housing starts to fall to a 1.60 million unit pace from December's originally reported pace of 1.642 million units...

In other data released on Friday, U.S. producer prices shrank a slightly bigger-than-forecast 0.6 percent in January, as energy prices declined sharply...

Analysts polled by Reuters had predicted producer prices would fall 0.5 percent while core, non-food, non-energy producer prices were forecast to rise 0.2 percent last month, which they did.

Also down in January were German consumer prices despite an increase in the value-added tax, although they were up on a year-on-year basis. Bloomberg reports:

Consumer prices rose 1.8 percent from a year earlier after increasing 1.4 percent in December, when measured using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today. The report confirmed an initial estimate reported on Jan. 30. In the month, prices fell 0.2 percent.

Indeed, the European Commission has cut its forecast for inflation even as it raised its forecast for economic growth for the euro zone. Again from Bloomberg:

The euro-area economy will expand 2.4 percent in 2007, faster than the 2.1 percent growth the commission forecast in November, the commission, the European Union's executive arm, said in Brussels today. Consumer prices will rise 1.8 percent this year, slower than the earlier 2.1 percent prediction and below the European Central Bank's 2 percent limit.

The outlook for the Japanese economy is also looking a little better, as the government revises its index of leading economic indicators for December to a still-low 31.8 points from an initial estimate of 25.0.