China faces increasing inflation risk | The Daily Star
12:00 AM, February 24, 2008 / LAST MODIFIED: 12:00 AM, February 24, 2008

China faces increasing inflation risk

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China's central bank warned on Friday (Feb 22) that China is facing an "increasing" risk of inflation and said price levels will remain high throughout the first half of the year.
"There is an increasing inflation risk," said the People's Bank of China's monetary policy report for the fourth quarter of last year.
The bank will "further" use the exchange rate policy to balance the economy, the report added.
"(We) will further bring out the role of the exchange rate in adjusting the balance of international payments and promoting balanced economic growth," said the report, which was published on the bank's website.
Analysts said the wording signals that monetary policymakers may consider quickening the pace of yuan appreciation to help curb inflation.
Growth of the consumer price index (CPI), a bellwether of inflation, surged to an 11-year high of 7.1 per cent last month as snowstorms cut transportation and power, and pushed up food and energy prices.
Analysts warned the situation may worsen through February and March.
"The underlying inflationary pressure/momentum is even stronger than the January headline number is suggesting, and CPI inflation will likely make two more new highs to reach 7.8 per cent in February and 8 per cent in March," said Ma Jun, chief economist of Deutsche Bank, Greater China.
He said in a research note that since the snowstorms happened in the second half of January, much of the inflationary impact of the natural disasters will be reflected in February.
Moreover, although raw agriculture prices went up substantially last month, it normally takes one or two months for the pressure to pass through to manufactured and processed food items, which will add pressure to inflation in the following months.
The inclement weather may have disrupted the supply chain of some products, which will take quite some time to recover, Sun Lijian, senior economist with Shanghai's Fudan University, said.
"I heard that in some places, pigs died due to the cold," he said.
Food price rises may in turn spill over to other sectors, pushing up prices of other products and labor costs.

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