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China missing inflation target could hike interest rates

Monday, August 13th 2007 - 21:00 UTC
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Zhang Tao: Letting inflation go or helping farmers Zhang Tao: Letting inflation go or helping farmers

Inflation in China, the world's fastest-growing major economy, accelerated to its highest level in more than 10 years, fuelling speculation that the Government may raise interest rates for the fourth time this year.

Consumer prices jumped 5.6% in July from a year earlier, after gaining 4.4% in June, said China's National Bureau of Statistics. Food costs climbed 15.4% after a shortage of hogs pushed up meat prices and bad weather destroyed crops. The central bank is concerned that food inflation will spread, overheating an economy forecast to contribute more to global growth than the US this year. The 3.5% for the first seven months is above the central bank's target ceiling for the year of 3%. The official China Securities Journal last week announced that the inflation rate would probably be 5.6%. The central bank said on August 8 that consumer-price gains weren't solely from "temporary factors". Zhang Tao from the Central Bank said that some of the indexes of the Chinese economy "most probably have entered an alarm zone" and some measures to avoid overheating "will have to be adopted". China's economy, the world's fourth largest, expanded 11.9% in the second quarter from a year earlier, the fastest pace in more than 12 years, but cash from record overseas sales raised inflation risks. Food accounts for a third of the consumer price index. Meat costs surged 45% last month from a year earlier and egg prices climbed 31%. The Government may be balancing higher food costs and the risk of increased expectations for inflation against the benefit of improved farmers' incomes, according to Capital Economics. China will overtake the US this year as the largest contributor to global growth, according to the International Monetary Fund. The IMF forecasts the nation will account for 15.6% of the expansion, versus 15.4% for the US.

Categories: Economy, International.

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