Bloomberg News

China 6% Inflation in Sight as NDRC Sees June Prices Jumping

June 22, 2011

(Updates with economist comment in fourth paragraph.)

June 22 (Bloomberg) -- China’s top economic planning agency said inflation will accelerate this month, bolstering analysts’ forecasts for the rate to reach 6 percent, the highest level since July 2008.

“The overall level of prices remains high and inflation will remain elevated for some months although the overall situation is controllable,” the National Development and Reform Commission said on its website today.

China has raised interest rates four times since September, limited bank lending and boosted food supplies as rising prices threaten to fuel social unrest. The Shanghai Composite Index has fallen more than 13 percent from this year’s April high on concern that tightening measures will drag down growth.

“Inflation is going to be stubbornly high in 2011 and it’s largely a food story,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. Authorities may be reluctant to keep tightening given “the risk that the economy slows down too much,” Condon said.

While the NDRC forecast faster inflation this month, it also said that the “momentum” of price increases has “to some extent been curbed.’”

The benchmark Shanghai benchmark was little changed at 10:58 a.m. local time.

Accelerating Inflation

Riots in Guangdong this month have highlighted the risk of social instability.

Consumer prices climbed 5.5 percent in May from a year earlier, the most since July 2008, and food prices surged 11.7 percent. Of the overall increase in prices, 3.2 percentage points was due to the impact of gains from May to December last year, while increases in the first five months of this year accounted for 2.3 percentage points, the NDRC said today.

Banks including China International Capital Corp., Societe Generale SA and UBS AG estimate inflation could accelerate to 6 percent this month before moderating in the second half.

The benchmark one-year lending rate is 6.31 percent and the deposit rate is 3.25 percent.

The People’s Bank of China hasn’t raised interest rates since April 5, the longest pause since increases began in October. A debate over the risks of tightening policy too much may have delayed an increase, Sun Chi, a Hong Kong-based economist at Nomura Holdings Inc. said June 20. Nomura expects the central bank to act this month.

--Chinmei Sung in Taipei and Huang Zhe in Beijing. Editors: Nerys Avery, Paul Panckhurst

To contact Bloomberg news staff for this story: Nerys Avery in Beijing at navery2@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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