China may take steps to curb inflation as Feb CPI rises 2.7%

11 March 2010 09:38  [Source: ICIS news]

SHANGHAI (ICIS news)--The Chinese government may soon have to take monetary policy actions to rein in inflation, which is on its fourth month of increase in February, analysts said on Thursday.

China’s consumer price index (CPI) registered a 2.7% increase last month, nearly double the 1.5% rate in January, data from the National Bureau of Statistics (NBS) showed.

“Last month’s CPI exceeded our estimate of 1.9%, signifying the inflation expectation has zoomed,” said Wang Xiaohui, an analyst from Shanghai-based Guojin Securities.

The country’s production price index (PPI) – a measure of wholesale prices, meanwhile rose for the third straight month, with an annual increase of 5.4% in February, based on official statistics.

China Premier Wen Jiabao had announced last week an inflation cap of 3% for this year, along with the target GDP growth of 8%.

“I think the full-year [inflation target] 3% in 2010 …. can be achieved if the government takes financial and monetary measures soon,” Wang said.

The People’s Bank of China - the country’s central bank - could raise the cash reserve ratio requirement for banks a third time and issue more bills, to limit the liquidity floating in the financial system without having to hike interest rates for the rest of the first quarter, analysts said.

The rapid growth of new loans in China last year has started to fuel inflationary pressures, as reflected in the uptrend of consumer prices since November last year.

The government’s efforts to curb excessive lending have started to work, with new loans in February falling by half to CNY700.1bn ($102.5bn) from January levels, based on PBoC data.

China hopes to limit new loans for the whole of 2010 to CNY7,500bn, against a record CNY9,590bn issued in 2009.

Meanwhile, China’s industrial output in the first two months of 2010 grew 20.7% year on year, with production from the chemical raw materials and chemical products sector jumping 25.1%, NBS data showed.

China’s urban fixed asset investment rose 26.6% year on year to CNY1,301bn in January and February, while retail sales soared 17.9% to CNY2,505bn, according to NBS.

($1 = CNY6.83)

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