Inflation bites again as food and rent rises
Mainland inflation continued to bite last month, hitting a higher than expected 4.9 per cent and sparking speculation that the central bank will raise interest rates again.
The consumer price index rose more than economists' consensus of 4.8 per cent and Beijing's full-year target of 4 per cent. But the rate was the same as that recorded in January.
People's Bank of China governor Zhou Xiaochuan said fiscal tightening measures including rises in interest rates and banks' reserve ratios were the main tools the central bank would use to rein in inflation.
Economists with BBVA, Bank of America-Merrill Lynch, Mizuho Securities and Barclays Capital said an interest rate rise of 25 basis points could come as early as the end of this month.
It would be followed by at least one more 25 basis point increase this year.
Morgan Stanley forecasts inflation will continue rising this month and will peak in June, and that the mainland must brace itself for two more rounds of interest rate rises by then.
Speaking in Beijing yesterday during the annual session of the National People's Congress, Zhou said the consumer price index 'is stable, though at a high level'.
He said: 'Interest rates are certainly an important tool that has to be applied.'
Some economists said the ripple effect of high inflation would spread into Hong Kong, which counts the mainland as a key source of foodstuff and fuel supplies.
Last month's increase in the consumer price index was driven by higher rents and food prices, which were up 11 per cent year on year compared with January's increase of 10.3 per cent year on year.
Economists said that the Ministry of Commerce's weekly food data showed pork, grain and vegetable prices continuing to rise this month.
Mizuho Securities chief economist Shen Jianguang estimated the CPI would hit 5.5 per cent or 6 per cent this month. Barclays Capital forecast that the CPI would end the year at 4.3 per cent, surpassing Beijing's 4 per cent target.
Although Zhou ruled out using the exchange rate of the yuan as a tool to tame inflation, China International Capital Corp chief economist Peng Wensheng anticipated that Beijing would accelerate the appreciation of yuan to help reduce the impact of inflation arising from commodity imports.
A BBVA research report forecast that the yuan would gain 5 per cent to 6.30 against the US dollar by the end of this year. Yesterday, one dollar bought 6.575 yuan.
Growth in retail sales slowed sharply to 15.8 per cent last month from 19.1 per cent in January. Economists blamed the slower pace of growth on a reduction in the number of cars sold as a result of Beijing's curbs on the issuance of new vehicle licences.
A system of auctions will reduce the number issued this year by two-thirds, to around 240,000.
The restrictions are intended to reduce congestion.
They contributed to a slowing in the growth of national car sales from 17.9 per cent in December to 9.9 per cent in the first two months of this year.
UBS economist Wang Tao warned that rising inflation and weak consumer confidence could hit sales growth in other areas.
Industrial input prices advanced 10.4 per cent last month, driven by higher prices of metals and oil.
However, inflation in factory-gate prices, which jumped to 7.2 per cent last month from 6.6 per cent in January, could not offset the higher input prices, thereby squeezing the profits of manufacturers.
Food price rises are fuelling inflation and are still on the increase
Last month, pork , grain and vegetable prices rose by this amount: 11%