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Consumer Prices up 3.8 Percent in April

China's consumer prices rose 3.8 per cent in April compared with the same month of last year, the National Bureau of Statistics said on Friday.


April's consumer price index (CPI), a key inflation gauge, jumped considerably from 2.8 per cent in the first quarter, the bureau said in a statement.


Retail sales rose 13.2 per cent in April to 400.2 billion yuan (US$48.2 billion), it said in a separate statement.


Qi Jingmei, a senior economist with the State Information Center, said the growth in retail sales is good news, because the government wanted to cool down investment but boost consumption.


But the higher CPI and the rise in producer and purchasing prices for raw materials, fuel and energy have become major concerns for the government, she said.


The country's strong fixed asset investment fueled both producer prices and purchasing prices for raw materials, fuel and energy, Qi said.


"More or less, the higher producer prices would translate into higher CPI."


Zhu Jianfang, an economist at China Securities, said the CPI would likely stay relatively high from the second quarter.


A higher CPI also increased the likelihood that the government will raise the interest rate to cool down the economy.


Zhu said if CPI stays at the 3 per cent level or higher in the coming months, there would be a possibility of raising the interest rates.


Yuan Gangming, a senior economist with the Chinese Academy of Social Sciences, said the government should have already raised interest rates to deal with the increasing inflationary pressure.


"The government should adjust the interest rates timely," he said.


Presently, the benchmark one-year bank deposit rate is set at 1.98 per cent.


"People are losing out when they save their money in banks because of low interest rates," he said.


The lower interest rates also impact people's consumption behavior, he said.


But Wu Xiaoling, vice-governor of the People's Bank of China, said late last month the central bank has no plans to raise interest rates in the near future.


However, if the inflation rate keeps going up, leading to an actual negative lending rate, the central bank would consider raising lending interest rates from the current 5.3 per cent, she said.


The central bank plans to closely follow CPI movement, Wu said.


"If CPI growth causes a negative lending rate, which enables corporations to make money even after they pay back the principal and interest, the central bank will consider raising interest rates," she said.


A negative lending rate would enable corporations to store raw materials, and drive the inflation rate further up, Wu said.


China has taken a series of measures since last year to try to cool down the economy, which grew 9.7 per cent during the first quarter, including raising bank reserve requirements and curbing investment projects.


In the latest move, central authorities told local governments they must halt utility price hikes if local inflation gets out of hand.


The People's Bank of China said on Tuesday it would keep monetary policy as tight as necessary.


(China Daily May 15, 2004)


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