Prospects of China hiking interest rates increased as inflation rose to 3.1 per cent in May, surpassing the government target of 3 per cent.
China's consumer price index-based inflation rose 3.1 per cent in May up from 2.8 per cent in April, National Bureau of Statistics said today. In May, consumer price inflation in urban areas rose 2.9 per cent while it was and in rural by 3.3 per cent.
Food prices, which account for about a third of the weighting in the CPI, rose 6.1 per cent. NBS spokesman Sheng Laiyun said inflation pressure is "rather big" but the government made all efforts to control the prices, specially that of food. He said higher inflation is due to a low comparison basis from the same period last year and was pushed up by food price hike.
Sheng said China has basics to keep price under control this year."Although China faces quite a lot of pressure, the 3-per cent target is still possible with effort," he said.
Analysts blamed the higher food and housing prices for the acceleration in inflation. Producer prices in factories rose by 7.1 per cent in May and 5.9 per cent over January-May period, causing concern as it is expected to go up further in the next few months as most of the factories are made to increase the salaries after strikes in Honda and spate of worker suicides in Foxconn. Meanwhile, industrial output rose 16.5 per cent in May which was 17.8 per cent in April.
Lu Ting, China economist at Bank of America-Merrill Lynch here, said the rising inflation could be interpreted negatively by markets, and would be a risk for a few more months. "But we don't expect a knee-jerk reaction from the policymakers. Interest rates won't be hiked until the fourth quarter this year," Xinhua news agency quoted him as saying.
But good news for China is that its fiscal revenue has gone up 20.5 per cent from a year earlier totalling 791.77 billion yuan ($115.93 billion) in May, the finance ministry announced on Friday.
The ministry attributed the jump to tax revenue led by economic recovery and lower comparison base. The fiscal revenue reached 3.55 trillion yuan for the first five months of 2010, up 30.8 per cent y-o-y, it said.
On the monetary front China's new yuan-denominated lending in May fell to 639.4 billion yuan from 774 billion yuan in April, the People's Bank of China said. China's broad money supply (M2), which covers cash in circulation and all deposits, rose 21 per cent y-o-y to 66.34 trillion yuan by the end of May, it said. The narrow measure of money supply (M1), cash in circulation plus current corporate deposits, climbed 29.9 per cent from a year earlier to 23.65 trillion yuan by the end of May. Analysts attributed the drop in new lending to waning market demand from realty sector and industries with excessive output capacity due to government bid to tighten monetary policy, Xinhua reported.
The May figure is in line with market expectation, said E Yongjian, an analyst with Bank of Communications, China's fifth largest lender. "Due to the government's measures since this April to cool the real estate market, home trading volume and mortgage loans declined nationwide," he said.
