China's consumer prices rose by 4.4 percent in May compared with
the same month last year, the fastest pace in seven years.
The consumer price index (CPI), policy-makers' key inflation
gauge, rose a year-on-year 3.9 percent in urban areas but 5.2
percent in the countryside, the National Bureau of
Statistics said on Friday.
In a separate report, the bureau said the country's retail sales
rose by an annual 17.8 percent in May, up sharply from April's 13.2
percent.
Sales in January to May were up by 12.5 percent from the same
period a year earlier.
Qi Jingmei, a senior economist with the State Information
Center, says the fast growth in retail sales is good news, because
the government wanted to cool down investment but increase
consumption.
And a higher CPI does not necessarily mean the country is facing
greater inflationary pressure.
"The higher CPI in May is partly due to a low base effect from a
year earlier, when the SARS outbreak dampened spending and hit
prices," Qi said.
In fact, consumer prices in May dropped by 0.1 percent compared
with the previous month.
Other figures in May also suggested that the central
government's measures to cool down the economy had taken effect, Qi
said.
The growth in both industrial output and money supply dropped by
1.6 percentage points in May compared with the previous month, she
said.
China has taken a raft of measures since last year to try to
cool down the economy, including raising bank reserve requirements
three times and curbing unwanted fixed asset investment
projects.
The latest moves to cool growth have included the issuing of
tighter restrictions on new projects in "over-invested" industries
like property and steel, and ordering banks to keep more money in
reserve instead of lending it out.
However, the possibility still exists that the central bank may
raise the renminbi interest rate in the coming months, Qi said.
People's Bank of China Governor Zhou
Xiaochuan said the central bank will follow the CPI movement
closely.
If the inflation rate keeps going up, leading to an actual
negative lending rate, the central bank would consider raising
lending interest rates from the current 5.3 percent, he said.
"If the CPI growth caused a negative lending rate, which enables
corporations to make money even after they pay back the principle
and interest, the central bank will consider raising interest
rates," Zhou said.
A negative lending rate would enable corporations to store raw
material and push inflation higher, he said.
Zhu Jianfang, an economist at China Securities, said the CPI
would maintain a relatively high level starting from the second
quarter.
"If the CPI continues to stay at the 3 percent level or higher
in the coming months, there would be the possibility of interest
rates being raised," he said.
Yuan Gangming, a senior economist with the Chinese Academy of
Social Sciences, said the government should have already increased
the interest rate to deal with the growing inflationary
pressure.
"The government should adjust the interest rate in a timely
fashion," he said.
Presently, the benchmark one-year bank deposit rate is set at
1.98 percent.
People are losing out when they save their money in banks
because of low interest rates, Yuan said.
The lower interest rate also has an impact on consumer behavior,
he said.
(China Daily June 12, 2004)