China's consumer price index (CPI) will see an increase of 3.1 percent in the second quarter of this year, according to a research report released yesterday by the China Center for Economic Research, Peking University.

Song Guoqing, a researcher for the center, said at the China Economic Observation Forum yesterday that China did face inflation pressures, and the People's Bank of China, the central bank, would increase the interest rate at least once this year.

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Song suggested the central bank should announce a 0.27 percentage point hike in key interest rates in the second quarter to cool down the economy.

Inflation accelerated 3.3 percent in March, the fastest pace in more than two years and breached the central bank's 3 percent target for 2007. Part of the increase was attributed to rising food prices, according to statistics from the National Bureau of Statistics.

Major financial indexes such as newly-added loans and the M2, the broad measure of money supply, are rising. These indexes have been running high this month and may become major factors affecting inflation, so the government should also pay attention to them, the report said

Another report issued by Lehman Brothers Holdings Inc on April 20 says China¡¯s inflation will fluctuate at three percent this year and the central bank will increase the interest rate in second quarter. Goldman Sachs predicated the central bank would increase the interest rate three times in the following two quarters.

Fourteen institutions including the two aforementioned investment banks predicted China's growth rate of the gross domestic product (GDP) will reach 10.7 percent in the second quarter of this year, slightly lower than its growth rate of 11.1 percent in the first quarter. But Song still insisted the second-quarter GDP growth rate would be higher than the first quarter.

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