Banking official admits inflation will top 3pc
Cary Huang in Beijing
PBOC bureaucrat says it will move to keep a lid on consumer prices
The central bank has for the first time admitted that the mainland's inflation rate will exceed its 3 per cent target this year and said it would take further measures if necessary to keep prices in check.
The remarks of People's Bank of China vice-governor Su Ning yesterday underscored the severe challenges Beijing faced in fighting inflation, which jumped to a decade-high of 5.6 per cent last month.
'Even though we have already increased our macroeconomic control efforts, the [increase in the consumer] price index this year is likely to exceed 3 per cent,' he told a briefing.
Rising consumer prices have become one of the top concerns of policymakers ahead of the Communist Party's 17th National Congress in October. The congress will set the mainland's policy agenda for the next five years and see a major reshuffle of the leadership lineup.
July was the fifth consecutive month the consumer price index (CPI) had risen by more than 3 per cent. The index rose 3.5 per cent year on year in the first seven months of the year.
But Mr Su indicated that gains in the index were still restricted to food, saying: 'We believe that as food prices are controlled, inflation will also be effectively curbed.'
He said the central bank would 'continue to pay attention to price increases and maintain basic price stability by carrying out analysis and taking specific control measures in a timely fashion'.
Ma Kai , minister in charge of the National Development and Reform Commission, said recent flooding across the country could create serious challenges for the autumn grain harvest and thus add inflationary pressure.
Mr Ma told lawmakers in an on-going session that the government would step up efforts to crack down on illegal price rises. Summing up the performance of the economy so far this year, Mr Ma said there continued to be a risk of overly fast growth in investment, credit and the trade surplus.
July's CPI growth, more than double January's 2.2 per cent gain and last year's 1.5 per cent inflation rate, was led by a 45.2 per cent rise in meat and poultry prices.
Most economists predicted the figure for the whole year would be about 4 per cent or higher.
National Bureau of Statistics chief economist Yao Jingyuan said sharp increases in the price of pork were due largely to the supply and demand imbalance, which would remain unchanged in the next couple of months.
Jun Ma, China economist with Deutsche Bank in Hong Kong, said wholesale price data for agricultural products pointed to a rise in inflation to about 6 per cent this month.
'This CPI trend obviously further raises the probability of another [interest] rate rise in the remainder of this year. We think the likely timing of the next rate rise will be in the second half of September,' Mr Ma said.
In an attempt to curb inflation, the central bank has increased interest rates four times this year - most recently last week - and has raised the reserve requirement ratio for banks six times.
The government has launched a campaign to fight inflation, including a crackdown on collusion by businessmen to raise prices. It has also increased financial aid to low-income families and subsidies to farmers to encourage food production.
Premier Wen Jiabao has warned that continual price rises will threaten social stability.