China's inflation to surpass govt target despite measures

Wang Tao, head of China Economic Research at UBS AG, said that the country’s inflation will surpass the government's target despite more expected tightening measures this year.

Consumer price index (CPI), a main gauge of inflation, for the full year will average 4.8% after reaching a high in the
second quarter, surpassing 4% target the government had set earlier this year, said Wang in a news briefing in Shanghai, the China Daily reported.

The national bureau of statistics last Friday said that CPI rose by 5.4% from a year earlier in March, up from 4.9% in
February and the fastest clip since July 2008.

The surge came despite government’s repeated concerns that inflation is its top economic priority this year. It has taken a series of tightening measures to fight inflation, including four interest rate increases since October last year.

The paper quoted Wang stating that although she expects 'multiple' reserve requirement ratio hikes and two benchmark interest rate increases for the rest of the year, it is still inadequate to hold inflation within the government's target.
 
On April 2, the national development and reform commission, China's economic planner, held informal talks with 17 retail industry associations, asking them to delay price hikes out of 'social responsibilities'.

"Measures like that are just temporary and won't last forever. Faced with rising cost, companies will increase prices sooner or later, putting pressure on inflation," Wang said.

China’s ever-inflating foreign exchange reserve is another source of inflation, Wang said, adding that the country must pump Yuan into the market to buy dollar and other currencies.