China’s inflation reaches 37-month high

August 9th, 2011 - 2:59 pm ICT by IANS  

Beijing, Aug 9 (IANS) China’s inflation rose to a 37-month high in July, putting the government in a tough position as its tightening efforts were yet to bear fruit, reported Xinhua.

The country’s Consumer Price Index (CPI), a main gauge of inflation, rose 6.5 percent in July year-on-year, up from a three-year high of 6.4 percent in June, the National Bureau of Statistics (NBS) said Tuesday.

The stubbornly high inflation rate has been driven by increasing food costs, which rose by 14.8 percent in July from a year ago. The price of pork, a staple food in China, soared by nearly 57 percent in July.

The Chinese government has made stabilising prices a top priority in the second half, as many believed that the government’s target of restraining annual inflation to 4 percent will be difficult to reach this year.

To soak up liquidity, the central bank has asked the nation’s banks to set aside a record high of 21.5 percent of their cash in reserves and increased its interest rates five times this year.

Wang Jun, an economist with the China Center for International Economic Exchange, said the government should understand that rising production costs are more compelling reasons for the current inflation situation, as its monetary tightening measures have seen little effect so far.

Wang said that the government has already used nearly all of the monetary tools at its disposal, which means that it might have an even harder time dealing with a new round of global financial turmoil.

Qu Hongbin, an economist with HSBC Holdings, said the government is unlikely to change its tightened monetary policies any time soon, as domestic inflationary pressures remain high.

He estimated that headline inflation will remain above 5 percent for another few months before dropping to around 4 percent by the year-end.

The Chinese economy expanded by 9.5 percent in the second quarter, slightly down from the 9.7 percent growth seen in the first quarter.

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