China's price index soars to highest level since 1996

China's inflation rate was near an 11-year high in last month, the government said yesterday, fueling fears that months of efforts to tame rising prices were not enough.

The consumer price index, a main gauge of the temperature of the economy, rose 6.9 percent last month compared with a year earlier, the National Bureau of Statistics said in a press release.

"The higher-than-consensus [inflation] in November confirms policymakers' increasing concerns about overheating and supports our expectation of more broad-based tightening measures in the coming year," Citigroup economist Yiping Huang (黃益平) said.

Last month's figure, up from 6.5 percent in October, was at the highest monthly level since December 1996, according to analysts.

The National Bureau of Statistics said the spike last month was propelled by an 18.2-percent rise in food prices. Pork, which forms the core of most Chinese diets, was up by a staggering 56 percent.

"We expect the government to let the currency rise more quickly in the coming year, alongside measures directly managing liquidities," Citigroup's Huang said.

The release of the data comes a week after the policy-making elite met in Beijing, agreeing to make inflation control a top priority next year.

In a twice-yearly survey released last week, the Organization of Economic Cooperation and Development also warned that China faced the risk of inflation becoming "entrenched."

In the period from January to November, the consumer price index was up 4.6 percent from the same period a year ago, the bureau said.

This compares with a 12-month inflation target of three percent set by the government early this year.

Yao Jingyuan (姚景源), chief economist at the National Bureau of Statistics, told state-run Xinhua news agency that full-year inflation was likely to reach 4.7 percent, also an 11-year high.

Inflation lingers despite efforts by the government to rein in the economy, with a recent emphasis on directly ordering the banks to curb lending.

"If credit tightening can't bring about a bigger effect within the next four or five months, the government is likely to raise interest rates by a much wider margin," said Andy Xie (謝國忠), an independent economist based in Shanghai.

This might entail hiking rates to a level where they are no longer negative once inflation is taken into account, he said.

The one-year deposit rate is currently at 3.87 percent, meaning people are guaranteed to lose money if they place their savings in the bank.

This is seen as a main factor behind the continued inflow of money into the real estate and stock sectors, both of which the government is currently trying hard to control.

"Since inflation is still much higher than the ... interest rate for 1-year bank deposits, we expect a 27 basis point hike in the 1-year bank lending and deposit rates before year-end," said Lehman economist Sun Mingchun (孫明春).