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Cary Huang

Fastest increase in 3 years shows inflation pressures remain
Factory-gate prices  on the mainland accelerated at the fastest pace in more than three years last month on higher energy and raw material costs, underscoring Beijing's battle against inflation is far from over.
The producer price index (PPI) increased 8.2 per cent in May from the same month last year after gaining 8.1 per cent in April, the National Bureau of Statistics said yesterday.
Blizzards and the   Sichuan earthquake have  worsened inflation on the mainland, with officials  calling rising prices  the country's economic enemy No1.
The latest data shows inflationary pressures are continuing to build even as the government controls prices of some retail products, notably fuel and foodstuffs.
As part of efforts to combat inflation and curb liquidity growth, the People's Bank of China on Saturday ordered commercial banks to   keep more cash in reserve. That  raised the  reserve requirement ratio  1 percentage point to a record 17.5 per cent.
One of  China's leading  statisticians yesterday said consumer inflation would not peak until next year. The China Securities Journal quoted Xu Xianchun,  the deputy commissioner of the National Bureau of Statistics,  as saying attention must be paid to inflation to avert  pressures on the economy.
The  bureau  will release today consumer price index data for last month  that  is likely to show an easing from April's 8.5 per cent increase but still  above the government's preferred target of under 5 per cent.
Jing Ulrich, the chairman of China equities at JP Morgan Securities, said  the rise in producer prices threatened to hit consumers even as food prices, the main contributor to the current bout of inflation, stabilised.
Ben Simpfendorfer, the chief Asia economist  at  Royal Bank of Scotland, said there was mixed news on inflation, with  consumer price inflation expected to fall in coming months but producer price inflation rising on raw material costs and earthquake and snowstorm-related reconstruction.
The National Development and Reform Commission, the top planning agency, yesterday ordered local governments in areas affected  by the May 12 earthquake to ensure supplies of construction materials and curb 'irrational price increases'.
Mainland consumers are  partly shielded from inflation by price controls on products such as fuel,  whose huge fluctuations could  ignite social unrest. Despite a  plan to reform fuel price caps, record high global oil prices mean changes to the  system have been put on hold.
On Sunday, NDRC vice-chairman Zhang Guobao said the current price curb policy was good for social and economic stability.
Despite government price controls on oil products,  petrol prices rose 11 per cent from 10.8 per cent in April and diesel prices  climbed 11.8 per cent from 10.2 per cent. Crude coal prices rose 24.1 per cent last month,  up from  20.9 per cent in April,  a statement posted on the  statistics bureau's website said yesterday.
Food price  rises have been  slowing as  the mainland increases  price controls and  supervision of daily necessities and building materials  after the  earthquake. It has also released reserves of grain and fuel for relief efforts to guarantee supply.
Ms Ulrich said any relaxation of price controls would open the door to further increases in the PPI and CPI as producers and consumers faced higher prices for fuel.
'With global commodity prices rising and demand from China showing no sign of moderating, upstream costs may contribute to sustained higher prices,'  she said.
Ms Ulrich  said  higher structural core inflation  might be a continuing  concern for policymakers and investors in the Chinese economy.
More cash
Banks are required to increase their reserves to a ratio of: 17.5%



Mainland factory prices  rise 8.2pc as costs surge