Chinese Central Bank Sees CPI Exceeding Government Target

Wednesday, August 29, 2007 6:54:29 AM - China's consumer price index - CPI is likely to exceed the government's target of 3.0% for the year 2007, People's Bank of China deputy governor Su Ning said Wednesday in a press conference in Beijing. "According to our analysis, although more measures have been taken to control the inflation, the (increase in the CPI) this year will likely be above 3%," he said.Food Prices Push CPISu said an 8.6% hike in food prices accounted for 80% of the increase in the consumer price index CPI during the seven months till the end of July."But we believe that once food prices are brought under control, the inflationary pressure will also be under control," he added.The National Bureau of Statistics said on August 13, that consumer price index rose 5.6% in July from last year, fuelled by higher food prices, particularly pork prices. This marked the highest monthly inflation rate since February 1997.Prices in urban area rose 5.3% in July from the previous year, while rural area recorded a 6.3% increase over the same period.Citing better control on credit and stabilizing inflation expectation, the Peoples Bank of China lifted the benchmark interest rates on August 21. The 1-year lending rate was raised by 18 basis points to 7.02%, while the 1-year deposit rate was lifted by 27 basis points to 3.60%.This marked the sixth increase since April 2006 and the fourth this year. The bank has also raised commercial banks' reserve requirements eight times since June 2006 in an effort to contain the widening credit growth.The central bank's recent move followed a 0.27 basis point increase made on July 21. The shortened time interval between the rate hikes came amid rising concern within the government over the expansion of credit growth and the spread of food inflation.Although the reason for the jump in headline CPI was attributed to pork supply shocks, there is also demand-side pressure growing in a rapidly growing economy, with the growth in aggregate money supply also staying at higher levels. This apart, the recent comments from the central bank deputy governor pointed to further tightening measures by the apex bank in the short-term.