Inflation in China reached 2.7 percent in
February, official statistics showed Tuesday, increasing the pressure on the
central bank to raise the interest rate.
Consumer price index, a key indicator of inflation, rose 2.7 percent
year-on-year last month, up from the 2.2 percent growth in January, the National
Bureau of Statistics (NBS) said in a report on its website.
The price hike was
mainly driven by rising food costs. Food prices surged six percent in February
while non-food items rose just one percent, said the NBS. Among the food items,
eggs and edible oil witnessed the biggest rises. They grew 30 percent and 17.4
A consumer shops at a super market in
Shanghai January 10, 2007. Inflation in China might reach a two-year high
in February, according to a poll of 21 economists by Bloomberg News,
increasing the pressure on the central bank to raise interest
The rural areas saw a bigger price increase than the urban areas, the report
said, with a 3.2 percent growth for the farmers against a 2.5 per cent rise for
The combined increase for the first two month of the year is 2.4 percent. The
People's Bank of China, the central bank, has set an annual target of 3 percent
for inflation control.
The February figure was a sharp increase from the 1.5 percent rise in 2006,
but slightly lower than the growth of 2.8 in last December.
The holiday generally distorts economic figures. China's biggest festival,
the Lunar New Year fell in the middle of February this year and in mid-January
Central bank governor Zhou Xiaochuan pledged to fight
inflation Monday during a press conference on the sidelines of the
annual session of the country's top legislature.
The current interest rate was appropriate, said central bank's vice governor
Wu Xiaoling Sunday, according to reports. However, when asked about this issue
again Monday, she refused to talk.
Ha Jiming, chief economist at China International Capital Corp. in Beijing,
expected the central bank to raise the interest rate if finding the combined
inflation number in January and February above 2.5 percent, according to the
However, an interest rate rise is expected to attract more "hot money" into
China, said analysts, adding to the excess liquidity plaguing the central bank.
Reining in excess liquidity is a priority of Beijing's monetary policy, said
Wu Xiaoling in an article published by the People's Daily in February. However,
interest rate could hardly contribute to this end, said Wu.
At current inflation rates, after-tax bank deposit rates are negative in real
terms, inviting depositors to withdraw their cash and pump it into property and
stocks, raising the risk of asset price bubbles.
The central bank in
February ordered lenders to set aside more money as reserves for the fifth time
in eight months. Lenders must set aside 10 percent of deposits, up from 9.5
The central bank has raised its benchmark interest rate twice since April.
The current one-year benchmark lending rate stood at 6.12 percent.
At the press conference on Monday, Zhou
Xiaochuan sought to reassure investors that the domestic stock market was
not in the middle of a downward trend and that the country would increase the
part direct financing played in the financial system.
He also said the country would build the market in line with international
standards so "people ... can better cope with any changes."
Zhou said other countries, including the United States,
also suffer from problems caused by excess liquidity.
He added that market regulators should adopt a prudent and "slightly