Consumption Expenditure News
- Inflation still strong, fueling worries
Date: 15-May-2007 Sources: (Shenzhen Daily)
CHINA'S annual consumer inflation slowed a touch in April to 3.0 percent from a more than two-year high of 3.3 percent in March, but analysts said the result would reinforce the case for further monetary tightening measures.
The pace, slightly below economists' expectations of a 3.1 percent rise, remained the second-quickest since February 2005, and it is just within the target zone of the central bank, which is aiming to keep inflation within 3 percent this year.
Some analysts say the inflation level will cause savers to effectively lose money - after bank deposit rates are adjusted for inflation - giving them further impetus to withdraw cash from banks and channel it into the country's booming stock markets, which could fuel further inflation of asset prices.
'I think today's number reinforces the case for a rate rise, but doesn't necessarily strengthen it,'said Tai Hui, an economist with Standard Chartered Bank in Hong Kong.
'I think CPI growth will hover at around 3 percent in the months ahead. The key issue is obviously food prices and whether that is going to drive inflation any higher,'Hui said, adding that the figure for non-food inflation looked benign and was being kept down by abundant manufacturing capacity.
Growth in producer prices picked up to 2.9 percent in April, from 2.7 percent in March.
China's main stock index, the Shanghai Composite Index, has surged by more than 50 percent since the start of the year, prompting worries among some officials over a bubble - and adding to expectations in the market over another interest rate rise.
The central bank, trying to keep a flood of liquidity in the banking system from fuelling inflation and excessive investment, has raised interest rates three times in just over a year, and increased the amount banks must hold in reserve seven times since last June.
Highlighting the extent to which retail investors are flocking into the stock market, central bank data showed Sunday that yuan deposits held by households fell by 167.4 billion yuan (US$21.8 billion) in April - something economists said had to be related to the rush to stocks.
Food prices, which have been the main driver of inflation in the past several months, rose an annual 7.1 percent in April, slowing from 7.7 percent in March. Stripping out food, inflation was just 1.0 percent.
'I don't think the central bank will raise interest rates any time soon out of concern over inflation. If it does raise rates in the next few weeks, it'll be because of the frenzy in the stock market,'said Lin Songli, an analyst with Guosen Securities in Beijing.
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