Inflationary pressure continues to build with the consumer price
index - a key gauge of inflation - surging 6.5 percent in August,
the highest since December 1996.
The upward spiral, driven mostly by an 18.2 percent surge in
food prices, followed the indicator's rise to a 10-year high of 5.6
percent in July, from 2.2 percent in January.
The stock market tumbled 4.5 percent yesterday as investors
panicked at the news, fearing more tightening measures.
Prices of pork and other meat surged 49 percent; cooking oil, 34
percent; and eggs, 23.6 percent, the National Bureau of Statistics
Prices of non-food products rose 0.9 percent, the bureau
Inflation for the first eight months reached 3.9 percent, and
economists and government organizations forecast that the CPI for
the whole year will surpass 3 percent, the target set by the
Facing mounting price pressures, central bank governor Zhou
Xiaochuan told a meeting in Switzerland on Monday that "curbing
inflation is our objective".
Goldman Sachs' Asia Economics Research Group expects the
People's Bank of China (PBOC) to further tighten monetary
The bank has raised interest rates four times this year, with
the latest on August 21, when the benchmark one-year deposit rate
was raised to 3.6 percent.
However, the return on deposits is still below the inflation
The PBOC also announced last week, the seventh time in less a
year, that it will raise the reserve requirement ratio by 0.5
percentage points for commercial banks to 12.5 percent starting
September 25, in a bid to "control excessive bank lending".
"Going forward, we believe there are non-trivial risks that
inflation may continue to edge up," said the research group.
However, major central government departments insist that the
current inflation, mainly caused by food price hikes, is structural
and inflation growth will slow in the fourth quarter.
Yao Jingyuan, chief economist with NBS, said the CPI growth will
slow after the third quarter because of increased supply of pork
and other foodstuffs.
The National Development and Reform Commission (NDRC), the top
economic planner, said all food demand except pork can be
satisfied, and "we see no threat of severe inflation."
International standards set annual price hikes of 5 percent as a
benchmark of high inflation.
Lu Zhongyuan, a senior researcher at the State Council
Development Research Centre, said the measures taken by the
government to control price hikes have been effective and that
inflation growth will be curbed.
However, some renowned economists, led by Justin Lin from Peking
University and Wang Tongsan from the Chinese Academy of Social
Sciences, said the country has entered a cycle of high consumer
prices; and warned of an inflation threat.
They said record high investment costs, growing wages,
increasing consumption demand and price hikes in the international
market have fueled inflation fears.
(China Daily September 12, 2007)