China’s inflation hits three-year high in June

July 9th, 2011 - 2:38 pm ICT by IANS  

Beijing, July 9 (IANS) China’s inflation rose to the highest level in three years with the consumer price index (CPI), the main gauge of inflation, rising 6.4 percent year-on-year in June, officials said Saturday.

According to the National Bureau of Statistics (NBS), the inflation rate in June accelerated 0.9 percentage points from the 5.5 percent in May that stood at a 34-month high.

The figures far exceeded government’s annual inflation control target of four percent, Xinhua reported.

Of the 6.4-percent CPI growth in June, 3.7 percentage points were contributed by the carryover effect of price increases last year, the NBS said on its website.

“We don’t have to panic about the June CPI figure,” said Zhang Liqun, a macroeconomic analyst with the State Council Development Research Centre, top government think-tank.

“A CPI growth above 6 percent doesn’t mean the inflation situation is worsening in China, because 3.7 percentage points of the increase were contributed by the carryover effect,” Zhang said.

He said the carryover effect had peaked in June and new factors that push up prices have been under the government’s control, adding that the supplies of food, except pork, are improving and will help ease inflation pressure.

Food prices, which account for nearly one-third of the basket of goods in the nation’s CPI calculation, continued to rise 14.4 percent in June from the same month last year, a pace faster than the 11.7 percent in May.

Growth in non-food prices also accelerated to 3 percent in June, up from a year-on-year increase of 2.9 percent in May.

In terms of regions, the CPI rose 6.2 percent year-on-year in China’s urban areas, and the growth in the rural areas was 7.0 percent, according to the NBS.

On a month-on-month basis, food prices added 0.9 percent from May, with the pork prices jumping 11.4 percent from previous month. Month-on-month price declines were reported in vegetables and fruits. Non-food prices were flat in June as compared with May.

Calling the June CPI figure “within the market’s expectation,” Zuo Xiaolei, chief economist for the Galaxy Securities, said the inflation rate would remain high in the future because “it takes a while to release the inflation pressure gradually”.

Zuo said under such great inflationary pressure, she foresees no change in the country’s monetary policy, which will be kept in a reasonable range to maintain a steady economic growth.

To cool down soaring prices, the People’s Bank of China (PBOC), the central bank, has so far raised the benchmark interest rates three times this year, including a latest rate hike of 25 basis points announced just three days ahead of the release of the June CPI data.

The central bank also raised the reserve requirement ratio six times in the first half of 2011, ordering banks to keep a record high of 21.5 percent of their deposits in reserve to rein in excess lending.

Professor Cao Fengqi, director of the Research Centre for Finance & Securities of the Peking University, said the CPI growth this year peaked in June.

Cao said adjustment of monetary policy is likely, at least the central bank will stop raising interest rates frequently.

Liu Shucheng, a senior economic research fellow with the Chinese Academy of Social Sciences, said China has had an inflation rate around 6 percent many times in the past.

According to the NBS data, China has seen a monthly CPI growth above 6 percent eight times since 2007.

“Our country has experience to battle an inflation rate around 6 percent, but of course we should manage inflation, particularly the inflationary expectation,” Xinhua quoted Liu as saying.

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