Chinese Inflation Stays Near 12-year High

China’s consumer price inflation clung near a 12-year high in April, maintaining pressure on the government to stick to its tight policy stance in spite of softening global growth., Financial Times 5/12/2008 6:33:04 AM

For authorities who have insisted their priority is to tackle price rises, the quickening of annual inflation to 8.5 per cent from 8.3 per cent in March will be frustrating, while also allowing them a glimmer of optimism.

Apart from February’s reading of 8.7 per cent, inflation was last higher in May 1996, when the rate was 8.9 per cent.

Food prices, which make up a third of the consumer basket, have been the overwhelming driver of inflation. They rose 22.1 per cent in April from a year earlier, though weekly government reports on fresh food prices have showed a slight dip in May.

Non-food prices rose 1.8 per cent in April from a year earlier, the same as in March.

Greater prominence needs to be given to curbing inflation and controlling price rises,” the National Bureau of Statistics said.

Zhou Xiaochuan, China’s central bank governor, said on Saturday that the country would give precedence to tackling inflation over targeting growth or employment.

Even as easing food prices give some grounds for hope, pipeline pressures have built up with the producer price index, or factory-gate inflation, hitting a three-and-a-half year high of 8.1 per cent in April.

The government declared it would tighten monetary policy this year to fight inflation, but it has yet to raise interest rates after six increases in 2007.

Instead, it has drawn on an array of tools, from bank lending curbs to faster yuan appreciation – the central bank on Monday set the highest daily reference rate for the yuan, 6.8920 per dollar, since it ended a fixed peg to the US currency in July 2005.

The 8.5 per cent reading was in line with a Reuters report last Thursday based on information from sources familiar with the data. Economists had expected a rate of 8.3 per cent.

The government set a target of 4.8 per cent for average inflation in 2008, but in recent weeks a series of officials have said the real number would very likely top that.

Chinese Inflation Stays Near 12-year High