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China targets stable growth with moderate higher inflation

Wednesday, August 13th 2008 - 21:00 UTC
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A major Chinese government think-tank in Shanghai has proposed raising the country's inflation target for this year and next to 5 to 7%, from the current official target for this year of 4.8%, the official China Securities Journal said on Wednesday.

A report by the economic forecasting division of the State Information Centre said the inflation target should be raised to offer more latitude to preserve stable, rapid economic growth, maintaining tight monetary policy together with an appropriate fiscal policy easing, the newspaper said. The proposal was made public following the announcement that July consumer price inflation fell to its lowest level in 10 months and is likely to slow further as food prices, which have been a major driver of overall price rises, continue to stabilize. July was the third consecutive month in which rises in the consumer price index have fallen. China's July CPI rose 6.3% from a year earlier, lower than June's 7.1% rise. Officials had previously said the inflation target was out of reach after high energy, commodity and food prices boosted annual inflation early in the year to a 12-year peak of 8.7% in February. The think-tank's report also said there was no need for further economic tightening measures, with inflation clearly likely to put less pressure on macroeconomic policy during the second half of the year. Last month Beijing decided to focus as much on maintaining economic growth as curbing inflation, but price pressures remain high and could pick up again next year as rising factory gate prices feed through. July factory-gate inflation figure released earlier hit a 12-year high of 10%. Since that decision, Beijing has slightly raised the ceiling on bank lending to help smaller firms pinched by tighter credit, and raised export tax rebates on some textile products to help exporters hurt by the global economic slowdown. While businesses are unlikely to quickly pass on rising labour and raw materials costs to consumers because of weakening demand, there are signs businesses are gradually lifting prices. Non-food prices rose 2.1% in July, slightly faster than June's 1.9% gain. Food prices, a large component of the CPI, rose 14.4% in July from a year earlier, slowing from their 17.3% increase in June according to National Bureau of Statistics data.

Categories: Economy, International.

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