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Banker signals firmer policies on inflation

(cri/Shanghai Daily)
Updated: 2008-06-23 14:10

China's central bank Governor Zhou Xiaochuan said "stronger policies" may be in the pipeline to tackle inflation exacerbated by the government's latest fuel-price increases.

"Surely higher energy prices will send some pressure to the consumer price index, so we may have stronger policies against inflation," Zhou told reporters in New York last Friday before a meeting with United States business groups. But Zhou didn't elaborate.

China on Thursday raised gasoline and diesel prices by at least 17 percent to take effect from last Friday, and increased power tariffs to rein in energy consumption. Crude oil prices are 91 percent higher than a year ago. China's retail fuel prices are about half the levels of the world's benchmark, Wang Qing, chief China economist at Morgan Stanley in Hong Kong, wrote in a June 6 report.

Inflation climbed to 8.1 percent in the first five months, from 4.8 percent for all of 2007. Though inflation last month was off the 12-year high of 8.7 percent reached in February, Zhou cautioned against saying inflation will slow.

"It's hard to say whether inflation will continue to ease for the rest of the year," Zhou told reporters in Washington, after meetings last week with US Treasury Secretary Henry Paulson. "We need to closely monitor it."

Aiming to keep consumer price increases for 2008 below last year's 4.8 percent, the People's Bank of China has ordered lenders to set aside a record proportion of their deposits as reserves and increased the pace of the yuan's appreciation this year to cool price gains. Zhou has kept the nation's benchmark interest rates unchanged after six increases last year, fretting that higher rates may attract more capital inflows, Bloomberg News said.

Economic losses

China's fuel-price increases may push up inflation in the second half of this year by 0.9 percentage point, Ha Jiming, chief China economist at China International Capital Corp in Hong Kong, wrote in an e-mailed note last Thursday. Inflation may rise as much as 7.5 percent in 2008, Ha wrote, adding China's fuel prices need to rise another 60 percent to reach global levels.

On top of higher prices of gasoline, diesel, electricity and jet fuel, the central bank's job to control inflation may also be complicated by rainstorms and floods caused by more than 10 days of downpours this month in south China's provinces, the most in 100 years in some areas, and spoiling 1 million hectares of farm land. The floods caused economic losses of about 20.3 billion yuan (US$3 billion).

Zhou is among Chinese officials led by Vice Premier Wang Qishan meeting with their counterparts, including Paulson, for the semiannual China-US Strategic Economic Dialogue. The Chinese officials were in New York last Friday for a series of meetings.