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Inflation eases but prices to remain high

(Xinhua)
Updated: 2008-06-13 11:45

This also deepened worries that higher factory-gate prices might lead to more worrisome broad-based price rises, in contrast to the current structural hikes mainly caused by food.

"The pressures for broad-based price rises are still the biggest risk for the macro-economy," the central bank said in a report published early the month.

More tightening, price curbs?

Chinese authorities still needed to stick to a tight monetary policy and raise interest rates "at a proper time," following the reserve hike on Saturday, to more effectively curb inflation, the BOC said in a research report released on Tuesday.

Rate hikes would help to end negative interest rates to become one of the most effective weapons against inflation, the report noted.

The central bank, however, has refrained from boosting interest rates this year, fearing that could attract more overseas speculative funds after the sharp rate cuts in the United States.

With difficulty in reaching a consensus on rate hikes, the PBOC would use more bill sales, reserve ratio increases and administrative intervention to curb excess liquidity and inflation, the report added.

The trade surplus, although shrinking in recent months, continued to pump a huge amount of liquidity into the banking system, partly blamed for price surges.

To curb inflation and support post-quake building, the National Development and Reform Commission (NDRC), the top economic planning agency, ordered on Wednesday temporary price controls on construction materials such as steel, cement, timber and glass.

Earlier the year, the NDRC ordered similar steps for basic necessities ranging from grain, edible oils, meat, milk and eggs to liquefied petroleum gas.

The decelerating inflation might offer an opportunity for lifting some price controls, including raising fuel prices, in the second half of the year, CICC added.

Price controls have managed to limit the inflationary surge, but they were also widely said to have cut corporate profit growth or even caused losses and made businesses unwilling to increase output, which in turn fanned inflation.

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