An expected slowdown in June inflation is unlikely to lead to a relaxation of tight monetary measures, economists said yesterday.

Lu Zhengwei, an Industrial Bank chief economist, said he expects June inflation figures to slow to between 6.9 percent and 7.6 percent, with a median figure of 7.3 percent, as food prices decrease.

China's inflation tamed to 7.7 percent in May from 8.5 percent in April.

However, the recent price rises for fuel and electricity may also affect inflation in the next few months, leaving authorities still keen to battle the problem, he said.

"Though commercial electricity prices are unchanged, the increase on fuel and industrial power prices will sooner or later translate into living cost increases and add to the uncertain picture," Lu said.

China raised prices on refined oil products last Friday. The prices of gasoline and diesel increased by 1,000 yuan (US$145.70) a ton while aviation fuel prices rose by 1,500 yuan a ton.

China also increased commercial and industrial electricity prices by an average 0.025 yuan a kilowatt-hour.

"The tight monetary policy won't relax in the third quarter," said Lu. "Quantitative measures and the yuan's appreciation may still be the main monetary measures in the third quarter."

His view is echoed by Bian Xubao, a Qilu Securities Co analyst. Bian expect first-half inflation to sit at 8 percent, with a June inflation rate of 7.7 percent. "Quantitative measures will be still the main tools, though an interest-rate rise can't be ruled out," said Bian.

Bian also expected a slowdown in company profitability as the cost of raw materials rises.

The People's Bank of China has already increased the reserve requirement ratio for banks to a 23-year high of 17.5 percent, having raised the limit five times this year.

Zhang Xuyang, deputy general manager for retail banking at China Everbright Bank, also predicted that tight monetary policy would prevail in the short term.

June figures for the consumer price index, the main inflation gauge, are due for release on July 14.

(Shanghai Daily June 27, 2008)