Inflation remains key risk to economy

The government will use reserve requirement ratios, interest rates and foreign-exchange rates to "eliminate the monetary basis for inflation", Premier Wen Jiabao said during a visit to Zhejiang province on April 9, according to a report by the Xinhua News Agency. Wen reiterated that controlling prices is his top economic priority after food and housing costs surged, threatening social stability.

Investors are growing confident that the economy can tolerate monetary tightening, with China's benchmark stock index climbing about 9 percent since the first of two interest-rate increases this year. The index's advance has beaten the 0.6 percent gain in the Standard & Poor's 500 Index and a 1.4 percent drop in the MSCI Asia Pacific Index.

Consumer prices climbed 5.2 percent in March, according to the median estimate in a Bloomberg News survey, and if that is the case, CPI would exceed the government's 2011 target of 4 percent for the third month. The statistics bureau is due to release the data on April 15.

Inflation in China is "causing some serious danger of wage-price inflation", billionaire investor George Soros said on Sunday at a conference in New Hampshire. "It would be very advantageous to allow the currency to appreciate as a way of controlling inflation," said Soros, chairman of Soros Fund Management LLC.

Higher commodity prices contributed to the nation recording its first quarterly trade deficit since 2004, underscoring the case for yuan gains to help contain prices, analysts said. Inbound crude oil shipments in the first quarter rose 12 percent by volume and 39 percent by value to $43.7 billion year-on-year. The cost of iron ore imports jumped 82.5 percent to $27.7 billion while the amount of metal climbed 14.4 percent year-on-year, customs data showed.

The People's Bank of China (PBOC) has raised interest rates four times and boosted banks' reserve requirement ratios six times since early October. Credit Suisse Group AG forecasts the benchmark one-year deposit rate, which has risen 1 percentage point to 3.25 percent, will climb another 1.5 percentage points by the end of the year.

A report this week may show China's gross domestic product expanded 9.4 percent in the first quarter from a year earlier, according to the median estimate in a Bloomberg News survey. The economy grew 9.8 percent in the fourth quarter.

There's "little risk of a hard landing", Paul J. Heytens, China country director of the Asian Development Bank, said last week, citing "robust" growth in industrial production, retail sales and real-estate investment.