Inflation exceeds target, Beijing to curb heating

Inflation in China edged higher in May, exceeding the official target of 3 percent for the year, amid some initial signs that the world's major developing economy's investment has slowed.

The National Bureau of Statistics reported Friday that consumer prices in May rose jumped 3.1 percent from a year earlier, accelerating from April's 2.8 percent rate. To make things worse, producer price index, a major gauge of inflation at the gate of manufacturers, soared a staggering 7.1 percent.

The rapid industrial product price rises are expected to be transmitted to consumer inflation in a couple of months, analysts say.

Higher inflation in recent months has stoked concerns that Beijing might hike interest rates to cool economy overheating that surged to 11.9 percent in the first three months.

Other data reported by the statistical bureau Friday showed economic activity slowing slightly but still expanding at double-digit annual rates.

Investment in factories and other fixed assets — watched closely by economists as an indicator of future growth — rose 25.9 percent, but that was down from April's 26.1 percent expansion. Growth in industrial output slipped to 16.5 percent, down from April's 18.8 percent.

New loans issued by Chinese banks also eased off in May, suggesting Beijing's moves to prevent the world's third-largest economy overheating were starting to work.

China's officials said higher food and housing prices in the first 5 months this year were to blame for the increasing inflation pressure, saying the country is facing an amounting task to curb price rises, which are politically sensitive in China.

Beijing would like to delay tightening monetary policy until it gets a clearer read of the property market and the fallout from euro-area weakness, economists said.

China has kept rates on hold, preferring more targeted administrative measures to curb the property speculation and to curtail bank lending that have fanned inflation.

The measures appear to be working. Property prices slowed in May from April while banks issued 639.4 billion yuan in new loans in May, down from the previous month. New yuan lending in May was less than the 774 billion yuan extended in April.

Initial market jitters that China's economy, now a prime engine of global recovery, could be hit hard by the European debt crisis eased after data released on Thursday showed its exports soared 48.5 percent year-on-year in May on strong foreign demand for Chinese products.

While Beijing was expected to keep rates and other tightening measures on hold for now, strong exports meant a revaluation of the yuan was likely in the coming months, analysts said.

But, any reform on yuan revaluation will be done in keeping with China's timing, they said.

People's Daily Online