China´s consumer price index (CPI) is likely to remain high in the second quarter of this year, rising to between 4.9 percent and 5.1 percent year-on-year, according to an official from the National Development and Reform Commission (NDRC), the country´s top economic planner.
CPI, a main gauge of inflation, may reach 5 percent for the first six months of 2011, but a "slight fall" is predicted for the second-half of the year, said Xu Lianzhong, director of the Analysis and Prediction Office of the NDRC, according to the Shanghai Securities News.
"It will be difficult to meet the government´s CPI target of 4 percent this year," the Shanghai newspaper quoted Xu as saying.
In a report released on Monday, Peng Wensheng, chief economist of China International Capital Corporation Limited, said that whole year CPI is predicted to be 4.5 percent. Peng added that the government is still facing serious inflationary pressure, fueled by soaring prices for imported raw materials and domestic agricultural products.
Peng forecast that the People´s Bank of China (PBOC), the central bank, may further raise the benchmark interest rate before the end of the second quarter. That would further soak up the excess liquidity that was partly responsible for CPI hitting a 32-month high of 5.4 percent in March.
The central bank has raised the benchmark interest rate four times since October, and has also increased the required reserve ratios - the amount of money that banks must hold in reserve - 10 times since the beginning of last year.
"It has been necessary to raise interest rates and required reserve ratios. However, the pace has been too slow, and the hikes were not enough to curb inflation," Xu Xiaonian, a professor of economics and finance at the China Europe International Business School, wrote on his micro blog.
Xu suggested further monetary tightening, but urged that the government should prevent "hot money" inflows attracted by interest rates that are higher than those of most other developed economies.
China´s current economic growth means it can withstand CPI at a level of up to 6 percent, said Yuan Gangming, a researcher at the Macroeconomic Research Institute at the Chinese Academy of Social Sciences. Yuan said an increase in CPI to 5 percent in the first quarter of the year, was "a reasonable result" in the light of fast-growing GDP that rose 9.7 year-on-year.
The monetary tightening policy may result in a slight decline in consumer prices after June. However, inflation is likely to remain high in the long term, Sun Chi, an economist at Nomura Securities in China, wrote in a report. He also forecast that CPI will hit 4.9 percent in 2011, and 5.2 percent in 2012.
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