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Tue, Aug 14, 2007 - Page 10 News List

Chinese inflation rate soars to decade high

AFP , BEIJING

A Beijing city foods administrator, left, watches a vegetable vendor correct her prices at a city market yesterday. China's consumer prices index jumped 5.6 percent last month over the same period last year, largely due to a 15.4 percent hike in food prices, the National Bureau of Statistics said yesterday.

PHOTO: AFP

China's inflation rate last month soared to its highest level in more than a decade, official data showed yesterday, sounding new alarm bells that will likely lead to further monetary tightening.

The consumer price index rose 5.6 percent last month compared with a year earlier, nearly twice the official 3 percent target set for all of this year, the National Bureau of Statistics said.

"Various economic indicators are on the rise, and they may enter into the alarm zone," the China Securities Journal reported, citing Zhang Tao (張濤), vice director of the central bank's international department.

"The objective now is to prevent the economy shifting from fast growth to overheating," Zhang said in remarks made prior to the official release of the inflation data.

Last month's figure was on the back of a sharp 15.4 percent spike in food prices, particularly the price of meat, which rose 45.2 percent from the same month in last year, the bureau said.

It is a trend of immense concern for most Chinese families, who on average spend about one-third of their consumption on food.

In a high-profile show of political will to act on the issue, Chinese Premier Wen Jiabao (溫家寶) has intervened, urging producers to find ways to ensure affordable pork, a main source of protein for most of the country's 1.3 billion people.

"Pork was a main factor behind July's inflation, but prices of vegetables, usually cheap in July and August, were also high due to disastrous weather," said Cheng Manjiang (程漫江), an analyst with Bank of China International in Beijing.

The China Daily reported on its Web site that last month's inflation was the steepest monthly increase since February 1997, with Western economists confirming the assessment.

The inflation rate, an acceleration from June's 4.4 percent rise in consumer prices, makes it much more likely China will hike interest rates, economists said.

"With this massive headline number, plus evidence of heightening central bank concern, we believe the chances of another rate hike soon are very high," said Stephen Green, a Shanghai-based economist with Standard Chartered.

With last month's level of inflation, and with the one-year deposit rate at 3.33 percent, people stand to lose more than 2 percent on their savings if they put their money in the bank. This makes it even more tempting to place the money in stocks instead, increasing the likelihood of new, steep rises in Chinese share prices.

The benchmark Shanghai Composite Index has jumped more than 75 percent this year, after surging about 130 percent last year.

The government is concerned a bubble is developing, which, once its bursts, could lead to immense pain for large sectors of Chinese society.

China has already hiked interest rates three times this year, most recently last month, after government data showed the economy rising by a whopping 11.9 percent in the second quarter.

In the first seven months of the year, consumer prices were up 3.5 percent from the same period last year, statistics bureau said.

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