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Analysts: More tightening measures needed to fight inflation

02-15-2011 11:31 BJT

Fresh data shows China's consumer price index rose to 4.9% year-on-year in January. That's a sigh of relief for those thinking it would come in as high as 5 and a half percent. But analysts say the government may still need to come up with more tightening measures to fight against rising prices.

Figures released by the National Bureau of Statistics on Tuesday show China's consumer price inflation rose to 4.9 percent in January compared with a year ago, up from 4.6 percent in December.

The Producer Price Index, a major gauge of upstream inflation, rose 6.6 percent from 5.9 percent in December.

Analysts say the acceleration of both data sets indicates increased inflation expectations.

Wang Tao, Chief China Economist of UBS Securities said "We expect the consumer price to pick up in January. Part of the reason is actually because of the Chinese New Year. Usually people buy a lot of things and prices go up just before the New Year. But it also means the underline inflation expectation and pressure remain very strong."

Food prices surged 10.3 percent year-on-year in January and remains a primary contributor to the inflation. Prices of grain, in particular, surged an even higher 15.1 percent.

Economists say the ongoing drought in northern China is a potential risk factor for prices of grain, especially wheat in the coming summer. If unfavorable weather conditions continue, it may increase inflationary pressures and eventually drive up already-high food prices.

Analysts predict inflationary pressures to ease in the latter half of the year. But prices may remain relatively high for the whole year.

Wang Tao, Chief China Economist of UBS Securities said "We do expect the inflation on average will be higher than the government target. The target is 4 percent for this year. We expect it to be close to 5 percent on average. In the first half, we expect more or less on average, it will remain above 5 percent. It will only meaningfully slow down in the 3rd and 4th quarter. And there is also risks that the inflation will be even higher than what we predict right now if the government doesn't take appropriate actions or there is more natural disaster which will affect grain and other food prices."

Wang Tao predicts policy-makers will hike interest rates twice, by a total of 50 basis points in the first half of 2011. In addition, she says the government may also need to adopt other liquidity tightening measures, including reserve requirement ratio hikes and curbing the growth of bank lending, to rein in surging inflation.

Editor:Xiong Qu |Source: CNTV.CN

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