Cold winter pushes up mainland inflation

Consumer price index climbs to 2.5 per cent in December as costs of vegetables soar 17.5 per cent in harshest weather in three decades

PUBLISHED : Saturday, 12 January, 2013, 12:00am
UPDATED : Saturday, 12 January, 2013, 4:21am

Inflation on the mainland rose last month for the second consecutive month amid the coldest winter in nearly three decades, although economists believe prices will remain under control in the near term.

Following the release of the inflation data yesterday, the People's Bank of China pledged to continue with its prudent monetary policy, prevent financial risks and keep consumer prices "basically stable".

The comment suggests the central bank may tread carefully in balancing its goals between supporting the economy and curbing inflation through what it called "steady and moderate growth" in credit supply.

The consumer price index rose 2.5 per cent in December from a year earlier, bringing the full-year inflation to 2.6 per cent, the National Bureau of Statistics said. The reading last month accelerated from the 2 per cent rate in November and was above market expectation for a 2.3 per cent rise.

The higher-than-expected inflation came after vegetable prices soared 17.5 per cent from November due to the cold weather and difficult transport.

Meanwhile, Zhang Xiaoqiang, a vice-chairman of the National Development and Reform Commission, said the economy probably grew 7.7 per cent last year and was likely to expand 7.5 per cent this year, Xinhua reported. He said inflation might rise to 3.5 per cent this year.

Economists say inflation remains manageable.

"There is little sign of severe inflationary pressure at this stage," said Yao Wei, a China economist with Societe Generale. "Hence, the People's Bank of China is likely to shift its focus to inflation and financial risk from growth, though gradually and carefully."

The producer price index contracted 1.9 per cent last month as costs of raw materials fell.

HSBC forecast consumer prices could be moderate this month because of a higher base effect but would rise during the Lunar New Year next month.

The consumer price index might average 3.1 per cent this year, said HSBC, forecasting interest rates would stay unchanged but reserve ratio cuts totalling 100 basis points could be effected in the next few quarters.

Standard Chartered is more concerned, saying inflation might average 4 per cent this year and 5 per cent next year.

"We think the PBOC will raise benchmark interest rates" once by 25 basis points in the fourth quarter, economists at the bank said in a note.

Caijing magazine reported this month that the central bank was likely to target an M2 - a broad gauge of money supply - growth of more than 13 per cent this year, compared with growth of 13.8 per cent last year, but added that the plan was not final.

The central bank said in its statement yesterday it would "steadily" push forward reforms on the interest rate system and expand cross-border yuan use.

The Shanghai Composite Index fell 1.78 per cent yesterday, the biggest daily decline since September 20 last year.