Wen Jiabao

Wen talks tough on rapidly rising inflation

PUBLISHED : Thursday, 14 April, 2011, 12:00am
UPDATED : Thursday, 14 April, 2011, 12:00am


Related topics

China will take firm action to control inflation and rein in property prices, Premier Wen Jiabao said at a cabinet meeting yesterday.

The nation should stick to prudent monetary policies and improve the effectiveness and flexibility of measures to 'resolutely' prevent prices from rising too fast, Wen told officials at a State Council meeting.

The mainland will release first-quarter economic data tomorrow. Economists expect economic growth moderated but inflation continued to climb in the first three months.

Analysing the economic situation, Wen said the international and domestic environment is 'still very complicated and unstable', and inflation pressures have now started spreading from emerging markets to developed countries.

Macroeconomic policies are being challenged by rapidly rising prices, intensified inflation expectations and shrinking transactions in the property market even though real estate prices keep rising in most cities, Wen said.

The central government has identified curbing inflation as a top priority for 2011 to prevent social unrest, establishing an annual target of 4 per cent for the consumer price index. The CPI rose 4.9 per cent in both February and January, after hitting a 28-month high of 5.1 per cent last November.

Tao Dong, an economist with Credit Suisse, said consumer price pressure on the mainland is acute.

'We estimate that even if the headline price level remains flat on a monthly basis from February, March headline CPI would still be high at 5.5 per cent year on year,' Tao said.

Fan Jianping, an economist with the State Information Centre think tank, forecast inflation would be 5.1 per cent for the first half of this year, reflecting excessive money supply, international commodity price rises and higher labour costs.

Wen said China would use central bank bills, deposit reserve ratios and interest rates to manage inflation, as well as to further improve the yuan exchange-rate mechanism and control financing.

The central bank has raised interest rates four times and bank reserve requirements six times since the middle of October.

Shen Jianguang, an economist with Mizuho Securities Asia, said interest rates would probably rise at least twice more before inflation came under control.