China to remain robust amid US grain price hike

Policies should continue to zero in on boosting growth because the surge will have limited impact, says analyst.

According to Bank of America Merrill Lynch, growth concerns have dominated policy-making and markets, with some even worrying about deflation just a month back due to weak demand and overcapacity.

Here's more from BofAML:

However, recently, the markets seem to have braced for a dramatic change of scene – the world now faces a surge in grain prices due to the worst drought and heat in 50 years in the US. We try to answer the following questions: (1) How will the US grain price impact China? (2) Is China already experiencing deflation now? ..and we see limited impact on China’s food inflation

The surge in US grain prices will have limited impact on China’s food inflation, and policies should continue focusing on bolstering growth, in our view. The risk of deflation is small, and falling commodity prices are largely good for China. That said, we revise our CPI and PPI inflation forecasts down to 2.9% and -1.0%, respectively, in 2012 (from 3.2% and 1.2%) to acknowledge a faster-than expected fall in prices due to softening demand and weak sentiment.

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