Consumers shop at a supermarket in
Suzhou, East China's Jiangsu Province April 27, 2007. China's
Consumer Price Index, a barometer of inflation, rose three percent
year-on-year, down from 3.3 percent in March, the National Bureau of
Statistics said on Monday. [newsphoto]
China's inflation eased in April, but barely meeting the government's target
of three percent, increasing the pressure on the central bank to raise interest
The Consumer Price Index, a barometer of inflation, rose three percent
year-on-year, down from 3.3 percent in March, the National Bureau of Statistics
said on Monday.
The increase was mainly driven by food prices which grew 7.1 percent
while non-food items rose a mere 1.0 percent.
Among food items, egg prices jumped the most, by 30.4 percent, followed by
edible oil and meat. Grain prices went up 6.1 percent.
The rural areas witness a price jump of 3.4 percent, bigger than 2.9 percent
for the cities.
The figures upped the pressure on the People's Bank of China to hike interest
rates as the country's real interest rate has been kept in negative territory.
China's benchmark one-year deposit rate stands at 2.79 percent and interest
income is subject to a 20 percent tax.
Another indicator of inflation, producer price index rose 2.9 percent in
April from 2.7 percent in March, the bureau said on Friday.
What adds to the pressure for an interest rate increase is a drop in
household deposits and higher lending activities.
Household deposits decreased by 167.4 billion yuan (US$21.7 billion) in
April, compared with an increase of 60.6 billion yuan (US$7.9 billion) at the
same time last year, the central bank said in a statement on its website on
Meanwhile, household loans went up 123.6 billion yuan, a year-on-year
increase of 63 billion yuan, according to the bank.
Given the lack of a substantial jump in consumption, analysts said, a major
part of deposits and loans may have flowed into the stock market which has
surged more than 50 percent so far this year on top of a 130 rally in 2006.
A total of 4.79 million new A-share trading accounts were opened in April,
853,500 more than the combined total for the previous two years, according to
statistics from the China Securities Depository and Clearing Corporation.
From May 8 to 10, 1.03 million new accounts were added, more than the total
number in 2005.
The wave of new money has consistently pushed the Shanghai and Shenzhen
markets to new highs.
The benchmark Shanghai Composite Index broke the psychologically important
barrier of 4,000 points on Wednesday, less than two months after surpassing the
The sharp gains are once again raising worries about bubbles developing in
the equity market.
If negative real interest rates are left un-checked, the sustainable
development of the market will be in jeopardy, Goldman Sachs warned last week.
"To ensure the sustainability of the market over the medium term, we believe
policy makers need to act quickly," economist Hong Liang of the investment bank
"Delays in policy actions will run the risks of severely impairing
households' balance sheets, exacerbating income and wealth distribution, and
setting back years of progress made on capital market reform."
Furthermore, banks extended 422 billion yuan in new loans in April, bringing
the amount for the first four months to 1.85 trillion yuan - more than half the
total for the whole of 2006.
In April, the broad measure of money supply - M2 -- slowed down to 17.1
percent from 17.3 in the previous month, the central bank said.
However, the M2 growth still remained well above the People's Bank of China's
full-year target of 16 percent.