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Inflation up in China; fears of more credit tightening

Wednesday, March 14th 2007 - 21:00 UTC
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Consumer prices in China during February were up 2.7% from a year ago, against January's rate of 2.2%, the National Bureau of Statistics said Tuesday.

While there were still concerns about China's economy overheating and the growth of an asset bubble, a rate rise was probably not needed immediately but not impossible, analysts said. They added that inflation is set to slow later this year as global food prices drop and as government moves to slow the economy start to take effect. Combining January and February to iron out calendar quirks prices were up 2.4% from a year earlier. In the same two months of 2006, the CPI was up 1.4 percent. "It seems a little too fast in recent months," Zhou Xiaochuan, governor of the People's Bank of China (PBOC), told reporters when asked about inflation. Zhou said the central bank was studying the figures. Although inflation remains below the PBOC's 3% target for the year, economists expect the central bank will soon tighten monetary policy again after figures on Monday showed a near-record trade surplus and surging credit growth in February. The central bank has raised benchmark interest rates twice since last April and increased on five occasions since June the proportion of deposits that banks must hold in reserve. Required reserves are now 10%, and Zhou flagged on Monday that more increases were in the pipeline. Huw McKay, an economist with Westpac in Sydney, said he now expects the required reserve ratio to reach 12.5% by the end of the year. He has also brought forward the expected timing of the next increase in interest rates by two months. Food prices climbed by 6% in February when compared with the same month a year earlier with one of the main drivers of growth has been world grain prices, which have pushed up bread prices in the UK and Europe. At the same time, the price of clothing and durable goods, such as washing machines has been rising for the first time in a decade. Non-food inflation in February was 1%. Food prices make up a third of the consumer price basket in China.

Categories: Economy, International.

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