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Surging prices stoke inflation fears

05-12-2010 11:09 BJT

BEIJING, May 12 -- China's consumer price index (CPI), a main gauge of inflation, hit an 18-month high in April, a rise of 2.8 percent over a year earlier, adding to fears of the econo-my overheating and fueling speculation of a possible hike in interest rates.

According to a statement released by the National Bureau of Statistics (NBS) Tuesday, April consumer prices are 0.4 percentage points higher than March's 2.4 percent rise, with food prices, which account for about a third of the CPI's weighting, leading the rise with a 5.9 percent jump from a year earlier.

The figure represents the sixth consecutive month of positive growth for the indicator, following nine months of negative growth, and challenges the Chinese government's goal of keeping the CPI's rise below 3 percent for the whole year.

"CPI growth is structural and still mild compared with our economic recovery and inflation in other countries," said Cheng Laiyun, an NBS spokesman. "In the short term, we are facing relatively large upward pressure on prices, but a full-year target of 3 percent is still achievable."

Yao Jingyuan, NBS' chief economist, attributed the April CPI growth, which is within market expectations of between 2.6 percent and 3 percent, mainly to rising food prices, particularly of vegetables.

Average vegetable prices in April surged about 25 percent from a year ago, with the wholesale price of garlic skyrocketing more than tenfold from a year earlier to about 12.2 yuan per kilogram at the end of April.

"The government should be vigilant and take action now to prevent the price hikes from spreading to the overall stock of food and commodities," Yao said.

Forecasting the CPI trend for the next three months, Yao said the index level would continue to rise further year-on-year given the low base rate in 2009.

Liu Shijin, deputy head of the Development Research Center (DRC), a think tank under the auspices of the State Council, warned that China faces some difficulties in hitting the government's inflation target this year.

With excess liquidity driving up prices, a more feasible goal will be to hold consumer price inflation to an average of less than 5 percent, he said at a financial forum during the weekend.

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