China's inflation, trade surplus jump, US trade deficit narrows

It looks like more tightening is in store for China after inflation hit a 10-year high last month, and a rising trade surplus is not helping. Bloomberg reports:

Consumer prices rose 6.5 percent in August from a year earlier after gaining 5.6 percent in July, the statistics bureau said today. The trade gap widened 33 percent to $24.97 billion, the second-highest monthly total.

Food costs drove the increase in inflation, jumping 18.2 percent after a shortage of pigs pushed up meat and poultry prices.

Exports rose 22.7 percent in August from a year earlier and imports gained 20.1 percent...

But even as China's trade surplus continues to climb, the US trade deficit appears to be stabilising, thanks largely to buoyant exports. MarketWatch reports:

The value of U.S. exports of goods and services to the rest of the world increased 2.7% in July, the fastest seasonally adjusted growth in more than three years, the Commerce Department reported Tuesday.

With imports growing 1.8%, the deficit between imports and exports narrowed by 0.3% to $59.2 billion in July, close to the market's expectations, from an upwardly revised $59.4 billion in June.

Both exports and imports reached record levels in July, reflecting strong global demand and higher prices. U.S. producers exported record values of capital goods, consumer goods, autos and foods, while U.S. consumers imported record values of foods and feeds.

Understandable then that Federal Reserve chairman Ben Bernanke thinks that there has been progress in reducing global trade imbalances but he thinks further progress is unlikely without significant increases in US saving and greater spending by oil exporters and China. The latter, though, could result in the decline in the global saving glut and potentially cause real interest rates to rise. I think his final words make good advice, especially in the wake of the turmoil in financial markets.

Accordingly, we are again reminded of the need to maintain appropriate humility in forecasting returns and asset prices.

The full speech by Bernanke is here.