Experts alert to inflationary trend
(China Daily)
Updated: 2004-03-13 00:06

China's consumer prices rose 2.1 per cent in February in comparison to the same month last year, the National Bureau of Statistics said on Friday.

February's consumer price index (CPI), policy-makers' key inflation gauge, eased significantly from 3.2 per cent price growth in January, the bureau said.

Urban CPI rose a year-on-year 1.4 per cent in February, while that in rural areas rose 3.3 per cent, it said.

Qi Jingmei, a senior economist with the State Information Centre, said the lower CPI figure in February was mainly because of the week-long Lunar New Year holiday that fell in February in 2003 but in January this year.

"Due to a spending spree last February, the prices were high that month," she said.

But this year, the prices returned to normal in February because the spending spree was one month earlier, she said.

Zhu Jianfang, an economist at China Securities, agreed with Qi, adding that the CPI would go back to a relatively high level in March.

The higher CPI in the previous two months, which stood at 3.2 per cent -- the biggest in nearly seven years, increased worries for both government officials and economists who thought the country's economy might overheat.

People's Bank of China's Governor Zhou Xiaochuan said the government should be alert to possible inflation.

Researcher Wang Zhao of the State Council's Development Research Centre said there are already some early signs of inflation.

Zhu Jianfang said if CPI continues to stay at the 3 per cent level or higher in the coming months, there will be the possibility of raising interest rates.

Song Guoqing, a professor at Peking University, said the government should already have raised the interest rate to deal with the increasing inflationary pressures.

"If people feel the trend of prices rising, they will rush to buy more goods," he said.

The panic purchasing will push commodity price rises further, he said. "Then, inflation will occur."

The government should adjust the interest rate in a timely fashion, 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 rate would also have an impact on people's consumption behavior, he said.

People would borrow money from banks to buy larger items like houses and wait for further price rises to make profits.

This would stimulate demand, which in turn fuels inflation, he said.

The lower interest rate would also stimulate investment, some areas of which have been considered overheated, Song said.

But Zhou Xiaochuan said the government chose not to raise the yuan interest rate this month, because inflation was still mild.

Monetary growth may push up interest rate

China's monetary growth quickened in the past two months as new loans accelerated despite last year's policy actions, increasing inflationary pressures and the possibility of an interest rate hike.

The People's Bank of China (PBOC), the central bank, said on Friday broad money M2, which covers cash in circulation and all deposits, rose by an annualized 19.8 per cent to 22.71 trillion yuan (US$2.73 trillion) at the end of February.

The pace was 1.3 percentage points faster than that recorded both one year and one month earlier, and outstripped a 17 per cent official growth target for this year.

The growth in new renminbi loans, a major driver of the money supply, also reversed a hard-won downtrend near the end of last year, growing by 55.3 billion yuan (US$6.7 billion) more than a year earlier.

The PBOC did not disclose how much was lent in the two months, but said the outstanding renminbi loans were 16.38 trillion yuan (US$1.9 trillion) at the end of February, up 20.7 per cent on an year-on-year basis, 0.6 percentage points faster than the previous month.

The central bank attributed the quickened annualized pace in monetary growth to the later arrival of the Chinese Lunar New Year, a period of relatively faster monetary expansion as people spend more. It fell in January this year but in February last year.

China's money supply rose by an expeditious near 20 per cent last year, pushing up inflationary pressures and prompting discussions about a possible interest rate increase this year.

On Thursday, PBOC Governor Zhou Xiaochuan ruled out the possibility of an interest rate hike this month, saying the bank would wait to see the lagged effects of last year's monetary policy actions.

The central bank tightened monetary policy last year in an attempt to cool down the rapid rises in new loans, raising bank reserve requirements by 1 percentage point in September.

Subsequently, loan growth abated slightly near the end of last year, which cheered central bankers.

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