China must prevent spread of inflation: c.banker
Sun Apr 20, 2008 1:14am EDT
By Langi Chiang
BEIJING (Reuters) - China needs to remain vigilant about inflationary pressures spreading from food to other products, despite a dip in overall consumer price rises in March, an assistant central bank governor said on Sunday.
Du Jinfu said the easing in annual consumer inflation to 8.3 percent in March from 8.7 percent in February mainly reflected seasonal factors and should not give policy makers reason to relax.
"The continuously elevated inflation is the No. 1 risk currently facing our economy, and we face a stern task to control overly fast price rises this year," Du told a conference.
"Domestic inflationary pressure is continuously growing. The prices of upstream products are rising fast. We need to be cautious about price surges spreading to non-food items."
Consumer inflation is running near 12-year highs, pushed up mainly by soaring food prices, which rose 21.4 percent in the year to March.
Many economists have noted rapidly increasing factory gate prices could be a sign of further pressure to come. The producer price index was up 8 percent from a year earlier in March, compared with a 2.7 percent annual rise in March 2007.
Du said recent U.S. interest rate cuts had restrained the use of some policy tools by Beijing.
He did not specifically refer to interest rates, but other officials have said that lower U.S. rates made it tougher for Chinese authorities to raise rates, as that could attract more inflows of money speculating on appreciation of the yuan.
Du added that it was necessary that authorities step up efforts at "window guidance," or telling banks to rein in their lending.
A global economic slowdown and high global commodity prices would also have a negative impact on China's economy, Du said, without elaborating.
He also cautioned that there could be a rebound in investment, as reconstruction of infrastructure in the wake of the winter's snow storms picked up and as newly installed local officials sought to make their mark through new projects.
Hou Yunchun, deputy director of the research office under the State Council, or cabinet, told the same conference inflation would exceed this year's target of 4.8 percent and growth would slow this year.
"There is a possibility of stagflation," Hou said, without giving detailed reasons.
He added that Beijing needed to tighten its controls over the financial industry, saying that it, more than industries such as food, energy and defense, was essential to stability.
"The financial industry is the one that can really pose a security threat to our country," Hou said.
(Reporting by Langi Chiang; Writing by Jason Subler; Editing by Lincoln Feast)
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