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People's Daily Online>>China Business

CPI rise may deter monetary policy loosening (2)

By Chen Jia and Wang Ying (China Daily)

08:45, February 10, 2012

"I spent more than 10,000 yuan ($1,587) during the holiday," said Fan Ye, who works with a Shanghai-based US company. Preparing for family dinners and buying gifts for relatives accounted for most of Fan's expenditure.

Some people are taking measures to combat the inflation risk.

"I do not see any sign that consumer prices will go down in the near future. I prefer to buy art and gold to retain value," Li Feifei, an employee at a State-owned company in Shanghai, said.

Non-food prices gained 1.8 percent last month from a year earlier, compared with 1.9 percent in December.

The producer price index, which measures the cost of goods at the farm and factory gate, rose 0.7 percent in January compared with 1.7 percent in December, the NBS said, indicating consumer price pressures would ease in the coming months.

Inflation was a headache for the government last year. The authorities took measures, including tightening bank lending and capping prices, to curb it but it still hit a 37-month high of 6.5 percent in July before declining to a 15-month low of 4.1 percent in December.

The festering European debt crisis is squeezing out China's exports.

The International Monetary Fund (IMF) this week warned that an escalation of Europe's fiscal woes could slash China's economic growth by half this year, and it urged Beijing to prepare stimulus measures in response.

In the IMF's "downside scenario" China's growth would fall by around 4 percentage points this year from the 8.2 percent rate it projected in January.

The nation's GDP slowed in the last quarter of 2011 to 8.9 percent from 9.1 percent in the third quarter and 9.5 percent during the April-to-June period.

Wang Tao, chief economist with UBS AG in China, said that the macroeconomic stance should support economic growth, instead of being changed on inflation fears.

"We continue to expect a generally stable macro stance in 2012, with modest easing in credit and more fiscal support in livelihood areas," Wang said.

Zhang, with Nomura Securities, predicted that there might be another 50 basis point cut in the required reserve ratios for banks next month. The central bank cut the cash that banks should keep aside in December.

"The January CPI may be the year's peak," said Zhu Haibin, chief economist of JP Morgan in China.

In February the CPI may still be higher than 4 percent, but is likely to ease from April and may drop to the lowest point of 2.8 percent in the second half, Zhu said.

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