Will the official housing prices fall in 2012?::

Will the official housing prices fall in 2012? Written by Li Mu Yang, Microeconomics Group, Samsung Economic Research Institute. In 2011, persistently high inflation became one of the most concerning issues. So, how will the inflation trend look in 2012?

According to the economic data released by the National Bureau of Statistics in December, the CPI (Consumer Price Index) for the first 11 months increased by 5.5% year-on-year, and the inflation rate in November was 4.2%. Although it has decreased from its peak and showed a month-on-month decline, it still remains at a relatively high level. It is estimated that the CPI increase will remain around 5.5%, far exceeding the inflation target of 4% set at the beginning of the year.

Unlike the inflation marked by price increases in agricultural products like garlic, mung beans, and sugar in previous years due to speculative activities, in 2011, almost all types of goods experienced price increases, reflecting an overall rapid increase in demand. This indicates that the main reason for this year's inflationary rise was the excessive issuance of currency in the past.

So, how will the inflation trend develop in 2012?

Looking at the international market, although the Federal Reserve has not yet implemented its third round of quantitative easing monetary policy, in response to the complex European sovereign debt crisis and weak economic growth and high unemployment rates in the United States, it has decided to maintain ultra-low interest rates until at least 2013. The dollar is unlikely to strengthen, and the upward trend in gold, commodities, and other international bulk goods prices will continue, which will exert certain external inflationary pressure on China in 2012.

Domestically, although the government has realized the seriousness of the inflation problem and has implemented a relatively tight monetary policy, due to domestic and international economic instability, the compression intensity and rhythm of money supply and credit have not been thorough or resolute enough. The phenomenon of negative interest rates has persisted for a long time, and the negative yield gap has become increasingly apparent, leading to the situation where inflation levels have remained consistently high.

Especially with the development of the European debt crisis and the slowdown in China’s economic growth, the monetary policy has begun to shift. If there is a general credit easing, the new RMB loans in 2011 may reach 7.5 trillion yuan, putting pressure on the prices of various goods in 2012.

As the CPI growth slows down, adjustments in resource prices are once again being discussed. Recently, the National Development and Reform Commission has once again signaled adjustments in energy prices. Considering the decline in CPI data in October and November, they will seize the opportunity to adjust the overall price conflicts, including heating and natural gas prices. The online electricity price for wind power has already been raised. The rise in the prices of relevant goods will undoubtedly increase future production and living costs.

For enterprises, as several provinces have already raised their minimum wage standards this year, this will continue to cause increases in labor costs in manufacturing and service industries. Most enterprises cannot absorb wage increases of about 20% through technological progress alone, so these increases will be passed on as pressures to raise the prices of goods and services. Recently, service prices have also shown widespread increases, especially in projects related to manual service prices, such as family services and personal services, which have shown clear upward trends, indicating structural inflationary pressures. This situation will likely persist in the future.

From the end of 2011 to the middle of 2012, under the suppression of the central bank's policies, both inflation rates will show a declining trend. It is expected that by June 2012, the inflation rate will drop below 4%.

However, facing the prospect of further slowing global economic growth, the recently concluded Central Economic Work Conference has once again placed maintaining growth at the top priority. Therefore, in the second half of 2012, there will be a reaction to a neutral or even slightly loose monetary policy aimed at maintaining growth, causing inflation to gradually rise. It is estimated that the inflation rate for 2012 will slightly exceed 4.5%.

Besides inflation, I am also highly concerned about the trend of housing prices in 2012.

Firstly, looking at the policy level, after more than a year of real estate control measures, the deadlock has finally started to break, and housing prices have just begun to show signs of loosening, entering a critical stage.

Although maintaining growth has once again been placed at the top priority, real estate remains the most effective and conservative engine for driving economic growth. However, if the control measures lead to a slowdown in GDP growth and reduce local fiscal revenue, there will be pressure from local governments, developers, and early investors hoping for a relaxation of control measures.

But the government is fully aware that the reason why housing prices have repeatedly skyrocketed in the past is because the control measures were not truly maintained, leaving the market without confidence. This is also one of the reasons why housing prices only began to show signs of falling after more than a year of control measures.

If the control measures are relaxed at this point, the rebound in housing prices will far exceed the uncontrollable situation caused by the financial crisis when control measures were relaxed to maintain growth. Therefore, it is certain that the government will continue to implement real estate control measures.

Source: (Editor: Purchasing Agent Editor)