Chinese School - Hunan Province tops China in CPI growth

BIZCHINA / Center

Hunan Province tops China in CPI growth

By Shangguan Zhoudong (chinadaily.com.cn)
Updated: 2007-06-26 11:41

Hunan Province's consumer price index (CPI) grew a record 5.3 percent
year on year in the first five months of this year, according to the
latest statistics from the National Development and Reform Commission
(NDRC), China's top economic planning body, the Beijing News reported
today.

In the first five months of this year, 16 Chinese provinces' CPI grew
more than three percent year on year, NDRC data show.

CPI of Northwest China's Qinghai Province, East China's Fujian Province
and South China's Guangxi Zhuang Autonomous Region increased by more than
four percent in the first five months compared with the same period a
year earlier.

Guangdong, Shanghai and Beijing, with their CPI for May growing 1.9
percent, 1.8 percent and 0.7 percent respectively, are the last three
regions in terms of CPI growth.

In May, China's CPI set a new record in more than two years with a 3.4
percent year-on-year growth, as pork and food prices soared. It was the
third month this year that the CPI exceeded or nudged the 3 percent mark
set by the central bank.

Besides the CPI growth and food price hikes, other economic indicators
also showed pressure of inflations and signs of overheating. The producer
prices index (PPI) in China grew 2.8 percent year on year in May. Also,
the retail sales in May rose 15.9 percent from a year earlier and China's
fixed-assets investment in urban areas rose 25.9 percent in the first
five months, triggering speculation over another interest rate hike.

Related readings:
All eyes on CPI to gauge future monetary moves
Central bank: Inflation could lead to rate hike
Inflation hits 27-month high in May Fixed-asset investment up 25.9%

"I forecast the central bank will raise the interest rate at the end of
June or the beginning of July ranging from 0.2 to 0.7 percentage points,"
said Chen Xingdong, managing director and chief economist of BNP Paribas
Peregrine.

"It's very likely to raise the deposit interest rate only due to a
too-big gap between deposit and credit interest rates," Chen said.

China's Premier Wen Jiabao also said in June this year that the monetary
policies should be "moderately tightened" to ensure stable economic
growth.

Wen said China will continue to adjust export rebates and tariffs on
certain items while further improving policies to boost imports in a bid
to address the climbing trade surplus. Wen also said the problem of
excess liquidity in the capital markets would need to be addressed.

The central bank may not raise the interest rate, because the sharp CPI
growth was due to food price hikes, which won't last for a long time,
because the price hike wave was caused by the global food price hike,
according to Zhao Xiao, a professor with the University of Science and
Technology Beijing.

Zhao also said that the central bank could consider canceling the
interest tax and raise commercial banks' deposit reserve requirements
again to cool down the economy.

The government has raised interest rates twice this year and increased
the amount of money the banks must hold in reserve five times.

China's central bank governor Zhou Xiaochuan said last Saturday that if
the CPI continues to rise, the central bank will not exclude the
possibility of raising interest rates again.

(For more biz stories, please visit Industry Updates)

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