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Hunan Province tops China in CPI growth

By Shangguan Zhoudong (chinadaily.com.cn)
Updated: 2007-06-26 11:41

Hunan Province'sconsumer price index(CPI) grew a record 5.3 percentyear on yearin the first five months of this year, according to the latest statistics from theNational Development and Reform Commission(NDRC), China's top economic planning body, the Beijing News reported today.

In the first five months of this year, 16 Chinese provinces' CPI grew more than three percent year on year, NDRC data show.

CPI of Northwest China's Qinghai Province, East China's Fujian Province and South China's Guangxi Zhuang Autonomous Region increased by more than four percent in the first five months compared with the same period a year earlier.

Guangdong, Shanghai and Beijing, with their CPI for May growing 1.9 percent, 1.8 percent and 0.7 percent respectively, are the last three regions in terms of CPI growth.

In May, China's CPI set a new record in more than two years with a 3.4 percentyear-on-yeargrowth, as pork and food prices soared. It was the third month this year that the CPI exceeded or nudged the 3 percent mark set by the central bank.

Besides the CPI growth and food price hikes, other economic indicators also showed pressure of inflations and signs of overheating. The producer prices index (PPI) in China grew 2.8 percent year on year in May. Also, theretailsales in May rose 15.9 percent from a year earlier and China's fixed-assets investment in urban areas rose 25.9 percent in the first five months, triggering speculation over another interest rate hike.

Related readings:  All eyes on CPI to gauge future monetary moves  Central bank: Inflation could lead to rate hike  Inflation hits 27-month high in May Fixed-asset investment up 25.9%

"I forecast the central bank will raise the interest rate at the end of June or the beginning of July ranging from 0.2 to 0.7 percentage points," said Chen Xingdong, managing director and chief economist of BNP Paribas Peregrine.

"It's very likely to raise the deposit interest rate only due to a too-big gap between deposit and credit interest rates," Chen said.

China's Premier Wen Jiabao also said in June this year that the monetary policies should be "moderately tightened" to ensure stable economic growth.

Wen said China will continue to adjust export rebates andtariffs on certain items while further improving policies to boost imports in a bid to address the climbing trade surplus. Wen also said the problem of excess liquidity in the capital markets would need to be addressed.

The central bank may not raise the interest rate, because the sharp CPI growth was due to food price hikes, which won't last for a long time, because the price hike wave was caused by the global food price hike, according to Zhao Xiao, a professor with the University of Science and Technology Beijing.

Zhao also said that the central bank could consider canceling the interest tax and raise commercial banks' deposit reserve requirements again to cool down the economy.

The government has raised interest rates twice this year and increased the amount of money the banks must hold in reserve five times.

China's central bank governor Zhou Xiaochuan said last Saturday that if the CPI continues to rise, the central bank will not exclude the possibility of raising interest rates again.