A woman customer buys pork at a market in
Yichang, Central China's Hubei Province in this June 5, 2007 photo. The
consumer price index rose 3.4% in May over the same period of last year,
according to statistics released on Tuesday by the National Bureau of
China's inflation in May hit the highest level in 27 months on rising pork
and food stuff prices, raising the pressure on the central bank to raise
The Consumer Price Index (CPI), a barometer of inflation, rose 3.4 percent
compared with the same period of last year, the National Bureau of Statistics
said Tuesday, beating the three percent target set by the People's Bank of China
for this year.
The increase, after a 3.0 percent rise in April and a 3.3 percent growth in
March, was mainly driven by surging grain and pork prices.
Pork prices climbed 43 percent year-on-year in the first three weeks of May,
according to official figures released earlier. Food accounts for a third of the
consumer price index and meat for seven percent.
The newly-released figure makes May the fourth straight month that saw
inflation outpace the benchmark one-year deposit rate, eroding people's
purchasing power and making the case for an interest rates hike.
week, central bank governor Zhou Xiaochuan said he was "closely" monitoring the
rising food costs and will study May's CPI data before any interest-rate change.
"Inflation is breaching the target and putting pressure on the central bank
to raise the rates," said Bank of China (Hong Kong) Ltd economist Michael Dai in
an interview with Bloomberg News. He expects the central bank to increase
interest rates twice more this year.
Tao Dong, chief regional economist for non-Japan Asia at Credit Suisse,
believes another three hikes are needed to reduce inflationary pressure as well
as to rein in soaring investment and property prices.
However, HSBC chief China economist Qu Hongbin and CITIC Securities analyst
Chen Jijun disagree. They believe rates hikes will not help curb inflation as it
is mainly caused by the tight supply of some commodities.
The central bank has raised interest rates twice this year, with the latest
coming on May 19 when the benchmark one-year deposit rate was raised 27 basis
points to 3.06 percent, while the lending rate for the same period was increased
18 basis points to 6.57 percent.
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