By Xin Zhiming (China Daily)
Updated: 2007-08-23 11:19

CPI challenge

Consumer price increases are another challenge, analysts said.

China's consumer price index (CPI) hit 5.6 percent in July, pushing the January-July figure to 3.5 percent, well above the whole-year target set by the central bank.

"Such a high CPI reading would likely re-intensify speculation about a potentially strong policy response," wrote Wang Qing from Morgan Stanley Asia Pacific.

Statistics show that the rise has mainly come from food price spikes.

"The authorities would need to keep a close eye on these developments, and ensure that temporary food price increases do not lead to more generalized inflation, or asset price rises turn into a 'bubble'," Hofman from World Bank told China Daily.

Both Goldman Sachs' Liang and Morgan Stanley's Wang also believe the authorities will not take tightening measures as harsh as in 2004 and the second half of 2006.

"We reaffirm our view that a policy-induced major economic downturn in the second half of this year is highly unlikely."

Economists have agreed that another interest hike at least, which would be the fourth this year, will come in the third quarter.

While that will bring some benefits for those with bank deposits, which offer lower-than-CPI interest rates, economists said it won't slow the steaming economy.

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