Commodities surge, China's inflation at 11-year high

The renewed surge in commodity prices recently doesn't bode well for global inflation. Bloomberg reports:

Commodity prices surged to a record, as oil jumped above $100 a barrel and copper rallied, on signs that increased global demand for raw materials and the weakening dollar are fueling inflation.

The UBS Bloomberg Constant Maturity Commodity Index gained as much as 3.1 percent to a record 1,447.015. Crude oil, platinum, soybeans and gasoline touched their highest prices ever, and copper jumped 5.5 percent, the most of any commodity futures.

China's inflation accelerated at the quickest pace in more than 11 years last month, the government said today...

Chinese consumer prices rose 7.1 percent in January from a year earlier, the statistics bureau said today, after gaining 6.5 percent in December. Inflation in the world's fastest- growing major economy has soared since last year partly because of food and fuel costs.

Perceptions of inflation is taking on crisis proportions in China. That seems to be the cue nowadays for monetary policy innovation. From Bloomberg:

China's central bank said it will increase innovation in monetary-policy tools after a report showed that inflation surged to an 11-year high.

China's economy faces "prominent" problems such as imbalanced international payments and excess liquidity, the People's Bank of China said. The comments were in a five-year plan for the finance industry released today on the central bank's Web site.

"We will further improve monetary policy controls, continue to use quantitative measures, widen usage of price- related policy tools and increase innovation in monetary policy measures," the central bank said in the report, without elaborating...

The government will "better coordinate domestic and exchange-rate policies" and use "multiple" tools to control bank lending, the central bank said in the report.

According to other Bloomberg reports, there are other central banks that are also concerned with inflation. For example, Australia.

Australian inflation may accelerate to almost 4 percent as a labor shortage worsens, central bank official Malcolm Edey said, driving up the nation's currency on speculation policy makers will raise borrowing costs again in March.

"The striking thing is the contrast between domestic and international conditions," Assistant Governor Edey told business leaders in Sydney today. "The Australian economy to date has stayed robust and the main domestic challenges are those of strong demand, tight capacity and inflationary pressures."

And Poland.

The National Bank of Poland needs to raise interest rates further after accelerating economic growth pushed inflation to the fastest in three years, two central bankers said.

Policy maker Andrzej Wojtyna said in an interview in Warsaw today that he saw room for at least one quarter-point interest rate increase "in the near future," while fellow rate setter Halina Wasilewska-Trenkner said an increase in borrowing costs may come as soon as this month.

But inflation is not accelerating everywhere. For one, inflation in Canada appears to be cooling.

Canada's annual inflation rate excluding volatile items such as gasoline was the slowest since July 2005 last month, contained by a sales-tax cut and lower car prices, giving central bankers room to lower interest rates.

Core prices rose 1.4 percent in January from a year earlier, slowing for the seventh straight month and below the central bank's target for a fourth month, from 1.5 percent in December...

The year-over-year all-items index slowed to 2.2 percent, the smallest gain since August, from 2.4 percent in December, matching economists' forecasts. On a monthly basis, prices fell 0.2 percent in January and the core index gained 0.1 percent.

And as the Guardian reports, Sweden's case shows that central bankers can sometimes act prematurely based on inflation forecasts.

Swedish consumer prices rose by an annual 3.2 percent in January, undershooting forecasts and leading analysts to say the central bank may be able to reverse last week's quarter-point interest rate hike later in the year...

The statistics office said a CPI basket revision took 0.2 to 0.3 percentage point off the annual rate and 0.5 point off the monthly figure. The CPI fell a monthly 0.8 percent in January.