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CPI rise may deter monetary policy loosening

By Chen Jia and Wang Ying (China Daily)

08:43, February 10, 2012

BEIJING / SHANGHAI - The inflation rate hit an unexpected three-month high in January as consumers increased spending during the Chinese New Year holiday.

The rate may deter policymakers from further loosening monetary policy, analysts said.

The consumer price index (CPI), a main gauge of inflation, rose 4.5 percent in January from a year earlier, higher than the 4.2 percent forecast among economists. This brought an abrupt halt to a run of five months of easing price pressures, according to data released by the National Bureau of Statistics (NBS) on Thursday.

If the holiday factor is discounted, inflation may still be declining, said Daniel Farley, a senior managing director of State Street Global Advisors, a US-based asset management company.

"The central bank may still have room to further loosen monetary policy, but at a moderate pace," Farley said.

Zhang Zhiwei, chief economist with Nomura Securities, said that the inflation rate provides evidence of risks and consequently "constrains the ability of the central bank to loosen monetary policy".

Food prices that account for about one-third of the CPI basket gained 10.5 percent year-on-year in January, compared with a 9.1 percent increase in December. Surging food prices have driven the CPI up by 3.29 percentage points.

China's one-week Lunar New Year holiday ran from Jan 22. According to an NBS survey on food prices in 50 cities, from Jan 21 to 30, the average price growth of nine popular vegetables increased by about 10 percent.

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