Economy

Inflation concerns persist as prices increase

By Li Woke (China Daily)
Updated: 2011-01-27 14:41

BEIJING - Despite a series of government measures to curb inflation, prices of foods and staple goods have continued to rise, fuelling concerns over future tightening policies. However, experts have ruled out the possibility of sharp economic fluctuations.

The National Bureau of Statistics on Wednesday announced that prices of around 40 staple goods, such as crude oil and iron ore, have increased during the past fortnight.

Meanwhile, the Ministry of Commerce said on its website on Tuesday that wholesale prices for 18 types of vegetables increased 12.6 percent over the past week, as a result of planting and transportation difficulties caused by freezing temperatures in Southern China.

Some experts are worried that the inflation rate will continue to climb this month as demand surges ahead of the Spring Festival, which begins on Feb 3.

Lu Zhengwei, senior economist at Industrial Bank Co, forecast the consumer price index, the main gauge of inflation, will accelerate to 5.3 percent this month, outpacing November's 28-month high of 5.1 percent.

The government has vowed to keep the inflation rate below 4 percent and has shifted its monetary policy from "moderate" to "prudent" this year because of concerns over credit-driven inflation.

Meanwhile the People's Bank of China (PBOC), the country's central bank, has made price control a top priority.

Related readings:  Food inflation threatens pricey consumer shares  Economists say inflation controllable in 2011  Chinese shares fall on inflation, monetary policy tightening fears  No fear of irreversible inflation

The PBOC has raised the benchmark interest rate twice and increased the reserve ratio requirement rate for banks seven times since January 2010.

China's banks lent 7.95 trillion yuan ($1.21 trillion) last year, breaching the government's credit target of 7.5 trillion yuan.

By Jan 24 this year, lending had reached 1.2 trillion yuan, and some banks may have exceeded the monthly quota within the first two weeks of the year, the China Securities Journal said.

Many economists agree that further tightening measures will be rolled out in the first half of the year to mop up excessive liquidity.

"Further increases in interest rates and the reserve requirement ratio are expected in February," Lu said.

According to the HSBC economist, Sun Junwei, the central bank is likely to raise the reserve requirement ratio at least three times over the course of 2011, coupled with two interest rate hikes.

"The tightened monetary policies will not have a devastating impact on the markets, either domestically or overseas," said Sun.

"On the one hand, the markets at home and abroad are all rebounding from the economic crisis. On the other, China's prudent policy will prevent the domestic economy from overheating and will avoid a hard landing."