Bond markets in China are increasingly indicating that inflation in the country may pick up pace in the medium term, Bloomberg reported. While official inflation figures dipped to 4.6% in December from 5.1% in November, the spread between 10-year and two-year bonds widened to 71 basis points Monday, up from 48 basis points just two weeks ago. Many financial analysts expect inflation to rise in 2011, and China’s central bank has taken aggressive measures to combat rising inflation, particularly in agricultural products, most recently by raising banks’ required reserve ratios last week. Over the weekend, China’s President Hu Jintao, due for a visit to the US this week, rejected arguments made by US politicians that the undervalued renminbi was importing US monetary policy to China and with it, inflation.
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