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Beijing says prices under control, no rate hike soon

China has its inflation problems under control and doesn't plan to hike interest rates in the immediate future, state media reported yesterday, dousing speculation that the central bank might raise rates to stem soaring investment.

The recent surge in prices to seven-year highs are a "sign of recovery" from relatively low prices in recent years -- and don't mean inflation will spiral out of control -- the National Bureau of Statistics said in a report carried by the official Xinhua News Agency and other media.

The consumer price index, a key inflation barometer, jumped to 4.4 percent last month as prices for food, housing and utilities jumped sharply. The producer price index -- the price of goods when they leave the factory -- rose 5.7 percent in the largest year-on-year increase since late 1996.

Those figures renewed speculation that the central bank might raise interest rates for the first time in nine years to help further tighten credit.

But a separate report, posted on the Web site of the state-run newspaper China Securities Journal, said the People's Bank of China planned to study at least three more sets of monthly inflation data before considering a raise in interest rates.

The report cited Mu Huaipeng, director of the central bank's research division.

Earlier, central bank officials had said a rate hike would be considered only if the consumer price index exceeds 5 percent.

The central bank last raised rates in July 1995, when the benchmark one-year lending rate was boosted to 10.08 percent from 9 percent. The one-year benchmark was cut eight times between May 1996 to February 2002. It's now 5.31 percent.

The statistics bureau noted that efforts to curb bank lending and dampen some booming industries' growth were showing effects. Growth in steel output last month was 9.4 percentage points slower than in April, while auto production slipped 12.1 percentage points, it said.

But the report acknowledged that soaring demand for key commodities such as coal and oil was still pushing prices higher. With the economy growing at a roaring 9.8 percent in the first quarter of this year, bottlenecks in transport and energy persist, it said.

"We must see very clearly that there are some obvious contradictions that haven't been resolved and that the demand situation for coal, electricity, oil and transport remains tight," it said.

"The scale of investment remains relatively high and preventing faster price increases remains a priority," the bureau said.
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