Taming inflation, China's major priority

11:09, July 10, 2011      

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by Xinhua writer Ni Yuanjin

China's consumer price index (CPI), the main gauge of inflation, rose by 6.4 percent in June over the previous year, setting the highest level since June 2008, the National Bureau of Statistics (NBS) said Saturday.

Food prices, which account for nearly a third of the basket of goods in the nation's CPI calculation, climbed 14.4 percent in June from a year earlier, a pace faster than an 11.7-percent increase in May, according to a statement on the website of NBS.

China must balance the need to keep inflation under control and support growth in the world's second largest economy, said Zhou Xiaochuan, China's central bank governor Friday at an international economic congress held in Beijing.

Zhou said that taming inflation remains a top priority for the government, even as economic growth continues to slow down.

However, China will tolerate some inflation, for it has been undertaking the transformation from a central-plan to a market-oriented nation, Zhou added.

"China was not ready to set an inflation target in its monetary policy," Zhou said.

TAMING INFLATION PRESSURE

Premier Wen Jiabao said in late June that the central government will have difficulties in keeping inflation under the 4-percent target. However, he added that the CPI will be kept below 5 percent.

Wen has said the government pledged to make it the top priority of macroeconomic controls to keep overall price levels stable during the "two sessions" held in March. At that time the government set a full-year target for inflation of about 4 percent.

Harvard economist Professor Dr. Dwight H. Perkins said that he had no concern about the 5-percent CPI and believed current inflation in China is just a temporary bubble.

"The inflation partially comes from the outside factors and China's central bank is doing things to control money supply and inflation," Perkins said while attending a world congress held by the International Economic Association (IEA) from Monday to Friday in Beijing.

China's central bank, the People's Bank of China (PBOC), announced on Wednesday that it would raise bank's benchmark one-year borrowing and lending rates by 25 basis points on Thursday.

The move raises the benchmark one-year deposit rate to 3.50 percent and the one-year benchmark lending rate to 6.56 percent, which is the third time for the central bank to raise interest rates this year. The previous one occurred on April 5. Meanwhile, the central bank has hiked the reserve requirement ratio for banks six times this year.

Zhou said Friday that policy interest rates are not always the best tool for China to tame inflation.

"Like other emerging economies, our policy uses different tools - interest rates and quantitative measures such as bank's required reserve ratio," Zhou said, "for China, the quantitative measures play an equal role, sometimes even more effective."

China still faces "large" inflationary pressure, and the central bank will maintain a "prudent" monetary policy, the PBOC said on July 4.

"We must pay close attention to the latest international and domestic economic and financial trends and influences and implement a prudent monetary policy," the central bank said in a statement after a meeting of its monetary policy committee.


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