Inflation to elevate in June, quick rate hike likely

15:40, June 22, 2011      

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Inflation is predicted to edge higher in June, China's top planning department said, and most economists say the central bank will be forced to raise interest rates again within the coming weeks.

In May, the consumer inflation rose 5.5 percent, the highest in 34 months, the National Bureau of Statistics reported last week. Earlier this year, Beijing has declared that taming inflation and reining in soaring living costs a priority for 2011. People's patience is wearing thinner as inflation has kept climbing.

"The estimate is that the overall price increase in June will be higher than May," said a statement on Wednesday by the National Development and Reform Commission, the central government's top economic planning agency.

If the prediction gets its way, the central bank will have to raise interest rates in late June or early July, analysts say.

Lu Zhenwei, a chief economist for the Industrial Bank Ltd, said he expected the central bank would raise interest rates by 50-75 basic points this year – 25 points apiece.

In the second half of the year, "new price increases should decline and prices for the full year can be controlled," the commission statement said.

It said floods in eastern and southern China that damaged crops were partly to blame for food price hikes. The May price rises were driven by an 11.7 percent jump in food costs. The Xinhua News Agency said prices of green vegetables were up 40 percent in some areas.

The People's Bank of China, the central bank, has raised interest rates four times since October and has ordered commercial lenders to increase their reserves to historical highs to limit lending. The required reserve ratio for the country's six biggest banks has been raised to 21.5 percent now.

By People's Daily Online
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