MercoPress. South Atlantic News Agency

China’s inflation peaks 4.4% in October pushed by food prices and tight supplies

Bad weather conditions punished food prices

China's consumer price index (CPI), a major gauge of inflation, reached its 2010 peak in October but the tendency is likely to slow down over the rest of the year, a report from the Bank of Communications forecast on Thursday.

The impacts of bad weather conditions, positive output gaps and tight industrial product supplies will gradually decline in the next two months, which may lead to a slower CPI increase despite short-term pressures from imported inflation and food price hikes that still exist, the report said.

The report was released after the country's October CPI hit a 25-month high of 4.4% year on year, accelerating from September's 3.6%.

The report anticipated that China’s whole year CPI will stand at about 3.1% and inflation will again pick up at the beginning of 2011, driven by long-term pressures brought by global and domestic excessive liquidities, food price hikes, rising labour costs and imported inflation.

From January to October, China's CPI rose 3% year on year, hitting the government's target ceiling for the year.

“Price pressures are increasing. That means pressure on macroeconomic controls is increasing,” said China’s Statistics bureau spokesman Sheng Laiyun

Last month China’s central bank anticipating the situation raised the benchmark interest rate and ordered banks on Wednesday to set aside more reserves in its latest effort to rein in liquidity.

Mr Sheng also said that the US's policy of pumping 600 billion USD into its economy to stimulate growth would put further upward pressure on prices in China.

”The new round of foreign quantitative easing (QE) policy will release enormous liquidity, which will have rather a significant impact on the Chinese economy.”

Separate figures from the statistics bureau showed that industrial output in China rose by 13.1% in October compared with a year earlier, slightly slower than the 13.3% increase recorded in September, while retail sales rose by 18.6%.