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Consumer prices set to rise by 3 percent

By Wang Xiaotian and Chen Limin (China Daily)

08:17, March 05, 2013

A top central bank official said on Monday that consumer prices will rise by about 3 percent in China this year, as monetary authorities make curbing inflation a top priority.

Yi Gang, deputy governor of the People's Bank of China and head of the State Administration of Foreign Exchange, said the central bank will continue to focus on maintaining relatively low inflation this year, and price increases would remain within a "controllable spectrum".

He made the remarks while attending a group discussion at the annual meeting of the CPPCC National Committee.

The forecast came just before Premier Wen Jiabao is to set an inflation target on Tuesday in his government work report.

Rising prices in China, including home and consumer prices, would be a major risk for the economy this year, said Li Daokui, an economics professor at Tsinghua University.

"Inflation is something to worry about, especially in the second half, as the sufficient supplies of agricultural products last year will gradually decline."

Li said authorities must be very cautious about rising prices, and it won't be an easy job for the government to keep inflation well under 3.5 percent.

Concerns over rising inflation are intensifying as some of the world's major economies have announced quantitative easing policies and capital inflows have accelerated.

Imported inflation should also be closely watched this year, said Mei Xingbao, an external supervisor for Bank of China Ltd.

According to data released by the State Administration of Foreign Exchange on Monday, Chinese banks made net purchases of $92.6 billion in foreign exchange for clients in over-the-counter transactions, surging from net purchases of $54.3 billion in December. The fifth straight month of net purchases was viewed as a sign of increased capital inflows into the economy.

The ensuing rising inflationary pressures would increase the risk of tightening and slower growth later this year, said Chang Jian, China economist with Barclays Capital.

Yi also urged major economies to avoid competitive devaluation of currencies, and China has taken global liquidity into full account when drafting monetary policy.

"We do not want a currency war. Hopefully the G20 countries could comply with the joint statement and reach a consensus. Monetary policies of countries should not only be based on their own economic situations, but should also try to prevent competitive devaluation of the currencies," Yi said.

He said while the world's major central banks are implementing a quantitative easing monetary policy, China will maintain its prudent monetary stance.

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