Inflation increases at fastest pace in three years

08:48, July 11, 2011      

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China's inflation accelerated to the fastest pace in three years, highlighting the challenge for policy makers of sustaining growth while taming prices.

The consumer price index increased 6.4 percent in June, the National Bureau of Statistics (NBS) said on Saturday, exceeding the 6.2 percent median estimate of economists surveyed by Bloomberg News.

The world's second-biggest economy is already cooling after the government curbed lending by boosting lenders' reserve requirements to a record and raising interest rates five times since September, most recently on July 6. A deeper-than-anticipated slowdown in China would curtail a global expansion imperiled by a potential default by Greece and signs the US recovery is faltering.

China "is in a delicate position right now", said David Cohen, a Singapore-based economist for Action Economics Ltd who previously worked at the US Federal Reserve. The government "wants to remain vigilant on inflation, but they don't want to slam on the brakes too hard", Cohen said.

Inflation was mainly driven by a 14 percent gain in food costs and also pushed up by an unfavorable base for comparison a year earlier, an effect that will diminish in the second half. Pork, a Chinese staple, rose 57 percent.

Signs that the world's second-biggest economy is cooling include a slide in a manufacturing gauge to a 28-month low in June. China's expansion may have slowed to 9.3 percent in the second quarter from a year earlier after a 9.7 percent increase in the first three months, according to a Bloomberg News survey. That report is due on July 13.

Producer prices rose 7.1 percent in June from a year earlier, the NBS said on Saturday, compared with 6.8 percent in May and the 6.9 percent median estimate in a Bloomberg News survey. Consumer-price inflation compared with 5.5 percent in May. Non-food consumer prices climbed 3 percent, the biggest gain since at least 2005, yesterday's report showed. Housing-related costs rose 6.2 percent. Consumer prices rose 0.3 percent from May, while food costs gained 0.9 percent month-to-month and producer prices were unchanged, the report showed.

Saturday's announcement of inflation data was brought forward from July 15 as the statistics bureau moved to cut the risk of leaks.

"The need to control domestic inflation has complicated the Chinese government's attempts to engineer a soft landing for the economy," Jing Ulrich, JPMorgan Chase &Co's chairman of global markets for China, said in a research note on Saturday. "Aggressive liquidity tightening will likely mitigate inflationary pressure, but also risks stifling economic growth, inducing what some observers have feared could be a 'hard landing'."

Rising food costs aren't confined to China. Global prices rose 39 percent in June from a year earlier, according to the Food and Agriculture Organization of the United Nations.

"China's inflation pressures remain strong," said Liu Li-Gang, who formerly worked for the World Bank and is chief China economist at Australia &New Zealand Banking Group Ltd in Hong Kong.

Source:China Daily
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