CPI growth slows as food prices moderate The mainland's inflation rate eased to 3 per cent last month, down from 3.3 per cent in March, but remained at the upper limit of the central bank's target level, the government said yesterday. For the first four months of the year, the Consumer Price Index rose 2.8 per cent year on year, up from the 1.5 per cent year-on-year rise recorded in the same period last year, the National Bureau of Statistics said. Producer prices rose 2.9 per cent year on year last month, up from 2.7 per cent in March, the bureau also said. Economists said the inflation rate remained relatively high and reinforced the likelihood of the central bank raising interest rates or taking other tightening measures in the near future. Rising inflation has put real deposit rates well into negative territory and is helping to fuel a growing stock-market bubble. The People's Bank of China aims to keep inflation within 3 per cent this year and officials have repeatedly said they are concerned about rising prices. Hong Liang, chief economist with Goldman Sachs, expected the central bank to tighten its policy in the near term because overheating pressures were continuing to build in the economy and the asset market. 'The real interest rate measured by the one-year deposit rate remains in negative territory. We expect the central bank to raise interest rates three times in the rest of the year, by 27 basis points each time,' Ms Liang said. Inflation, which has topped the benchmark interest rate for one-year deposits for three consecutive months, would further fuel the mainland's stock-market frenzy as investors seek better returns. The one-year deposit rate was lifted by 27 basis points to 2.79 per cent in March in the third increase in 11 months. The growing trade surplus, direct foreign investment and fund inflows betting on the appreciation of the yuan is complicating efforts to cool investment, lending, the asset bubble and inflation. The mainland's trade surplus for the first four months of the year was US$63.31 billion, 88 per cent more than in the same period last year. Meanwhile, a government think-tank has urged the central bank to raise interest rates further to soak up excess cash and prevent economic overheating, the China Securities Journal reported yesterday. The Macroeconomic Research Institute, under the National Development and Reform Commission, said there was limited room for the central bank to raise banks' reserve requirements or issue bills in order to absorb liquidity. The central bank has raised commercial banks' reserve requirements seven times in the past year in an attempt to mop up liquidity in the banking system. Food prices, which have been the main driver of inflation over the past few months, rose 7.1 per cent year on year last month, slowing from 7.7 per cent in March. Excluding food, inflation was just 1 per cent. Shrinking farmland and rising demand from an increasingly rich population are pushing up food prices. The Consumer Price Index in urban areas rose 2.9 per cent year on year last month, while that for rural areas rose 3.4 per cent.