Prices up as growth slows

10:12, June 12, 2010      

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Concerns over inflation in China are mounting as its consumer price index (CPI) exceeded the annual target of 3 percent set by the government and after a recent announcement of wage increases across China.

Officials and analysts, however, said the inflationary pressure is likely to abate and China will not see a higher interest rate soon.

According to a statement released by the National Bureau of Statistics (NBS) Friday, China's CPI, a main gauge of inflation, rose 3.1 percent year-on-year in May from April's rise of 2.8 percent.

It marks the quickest inflation pace in 19 months, Bloomberg reported.

NBS spokesman Sheng Laiyun attributed the higher inflation to the low comparison basis from the same period last year and a hike in food prices.

Food prices, which ac-counted for about a third of the weighting in calculating the CPI, rose 6.1 percent from a year earlier.

But Sheng said China had the basics for keeping prices under control this year, adding that the prices of vegetables, clothes and home appliances have begun to decline.

Zhu Jianfang, chief macroeconomic analysts of CITI Securities, told the Global Times that the CPI didn't reached its ceiling in May and is likely to peak in the third quarter.

Michael Taylor, chief economist of the China Economic Policy (London) Research Center, told the Global Times Friday that inflationary pressure this year will peak at around 5 percent between August and October, before re-treating by the end of the year to around 4.2 percent.

The continuous rise of consumer prices comes after a spate of strikes in some industrial areas of the country prompted businesses to announce wage hikes. Meanwhile, a round of wage increases has also been launched by local governments this year, adding pressure on businesses to raise prices to their consumers.

The producer price index (PPI), a major measure of inflation at the wholesale level, rose 7.1 percent year-on-year in May, up 0.3 percentage points from April's 6.8 percent.

The rising prices raise the prospect for tightening credit and raising interest rates.

According to the latest figures released Friday by the People's Bank of China, the country's central bank, new yuan-dominated lending in May shrank to 639.4 billion yuan ($93.6 billion) from 774 billion yuan in April.

Li Daokui, an adviser to China's central bank, told People's Daily on Wednesday that conditions for raising interest rates were ripe given intensified pressure on inflation in the second half of the year and next year.

However, most analysts said the CPI figure is unlikely to prompt an abrupt increase in interest rates.

Cai Zhizhou, vice director of the China Center for National Accounting and Economic Growth at Peking University, told the Global Times that the CPI is not a sole gauge for raising interest rate, adding that interest rates rising alone won't curb inflation.

"Some of the recent policies issued by the central government to contain soaring housing prices have actually produced the same effects of hiking interest rates," he said.

Statistics released by the NBS Thursday show that the selling price of properties in 70 large and medium cities across the country increased 12.4 percent, 0.4 percentage points less than last month, the first decline in 14 months.

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