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Inflation fears rise

by 5m Editor
9 August 2007, at 9:09am

HONG KONG - Mainland consumer prices will remain high in the second half as recent price increases are neither accidental nor temporary and inflation risks should be noted with concern, the People's Bank of China cautioned yesterday in its second-quarter monetary report.

Inflation acclerated to a 33-month high of 4.4 percent in June, pushing up the first-half figure to 3.2 percent - both exceeding Beijing's full-year target of 3 percent.

The government is due to release last month's consumer price index data on Monday. Most economists forecast consumer prices would rise above 5 percent on food costs.

Rising prices for pork and eggs have propelled food costs by 11.3 percent in June compared with a year ago.

The PBOC said inflation in the agricultural sector has spread to industries such as food processing, hospitality and even services. To make matters worse, a drought is fueling uncertainty over food supply in the fall, further increasing the pressure on prices.

"Judging by internal and external factors, current price hikes are not simply due to accidental factors and they are hard to solve in the short term," the central bank said.

The PBOC will monitor inflation risks and use "moderate tightening measures" to prevent overheating.

The bank said it had detected increasing evidence the economy could overheat. In the second quarter, gross domestic product expanded to a 12-year high of 11.9 percent from a year ago and is likely to remain high for the rest of the year.

But some economists argue inflation will come down, considering the cyclical nature of consumer prices, with Morgan Stanley's Qing Wang saying the fears over inflation "seem inflated."

He added: "We believe this round of inflation is cyclical and China's surplus labor and rapid productivity gains will continue to help contain inflationary pressures in China over the next several years at least."

Source: The Standard

5m Editor