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Inflation rate hits 27-month high
www.chinanews.cn 2007-06-13 10:23:08
(Source: chinadaily)
A woman customer buys pork at a market in Yichang, central China's Hubei
Province in this June 5, 2007 photo. The consumer price index rose 3.4%
in May over the same period of last year, according to statistics
released on Tuesday by the National Bureau of Statistics.
June 13 - China's inflation in May hit the highest level in 27 months on
rising pork and food stuff prices, raising the pressure on the central
bank to raise interest rates.
The Consumer Price Index (CPI), a barometer of inflation, rose 3.4
percent compared with the same period of last year, the National Bureau
of Statistics said Tuesday, beating the three percent target set by the
People's Bank of China for this year.
The increase, after a 3.0 percent rise in April and a 3.3 percent growth
in March, was mainly driven by surging grain and pork prices. In May,
food prices jumped 8.3 percent, while non-food items rose 1.0 percent.
Among food products, grain prices rose 5.9 percent.
In May, the price of meat and meat products shot up 26.5 percent, and
that of fresh eggs rose by 37.1 percent. But the prices of fresh
vegetables and fruits dropped, by 2.3 percent and 11.2 percent
respectively, according to the NBS statistics.
A rise in food prices is especially sensitive because it would be felt
most strongly in the poor countryside. The NBS said the CPI rise in May
in the rural areas was 3.9 percent, and that in the urban areas was 3.1
percent.
Pork prices climbed 43 percent year-on-year in the first three weeks of
May, according to official figures released earlier. Food accounts for a
third of the consumer price index and meat for seven percent.
The newly-released figure makes May the fourth straight month that saw
inflation outpace the benchmark one-year deposit rate, eroding people's
purchasing power and making the case for an interest rates hike.
Last week, central bank governor Zhou Xiaochuan said he was "closely"
monitoring the rising food costs and will study May's CPI data before any
interest-rate change.
"Inflation is breaching the target and putting pressure on the central
bank to raise the rates," said Bank of China (Hong Kong) Ltd economist
Michael Dai in an interview with Bloomberg News. He expects the central
bank to increase interest rates twice more this year.
Tao Dong, chief regional economist for non-Japan Asia at Credit Suisse,
believes another three hikes are needed to reduce inflationary pressure
as well as to rein in soaring investment and property prices.
However, HSBC chief China economist Qu Hongbin and CITIC Securities
analyst Chen Jijun disagree. They believe rates hikes will not help curb
inflation as it is mainly caused by the tight supply of some commodities.
The central bank has raised interest rates twice this year, with the
latest coming on May 19 when the benchmark one-year deposit rate was
raised 27 basis points to 3.06 percent, while the lending rate for the
same period was increased 18 basis points to 6.57 percent.
On the timing of the next rates hike, some analysts expect it to happen
before late June as CPI has been hovering at or above three percent for
several months.
However, Shenyin Wanguo Securities chief analyst Gui Haoming put the
timeframe in July or August. The central bank raised the interest rates
just in mid-may and it usually will wait some time to see the feedback
before another move, making rates hike in June unlikely, Gui explained.
Qiu Yanying of TX Investment Consulting Co. echoed Gui's points. Qiu
expected the central bank to wait until next month's CPI is released
before deciding on further interest rates hike.
Stock market
The analysts are divided on the impact of an interest rate rise on the
stock market, which is gradually recovering after a series of slumps
caused by the stamp tax hike announced on May 29.
The influence on the equity market will be limited, as an interest rates
hike was expected, said Gui Haoming.
However, other analysts thought the market is currently at a sensitive
period and an increase in interest rates will probably result in wilder
fluctuation. They also pointed to the weak performances of banking stocks
in the last few days, which they said was caused by expectation of a
rates hike.
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