China inflation to rise despite tightening

Chinese inflation continues to rise China's inflation this year will surpass the government's target of 4 percent as foreign investments and speculative capital inflows rise, an analyst said. The consumer price index, the main measure of inflation, will increase an average about 4.8 percent for all of 2011 even as the government and the central bank continue their tightening measures, China Daily reported Tuesday, quoting Wang Tao, head of China Economic Research at UBS AG.

The National Bureau of Statistics reported last week the March CPI rose by 5.4 percent from a year earlier, up from 4.9 percent in February and the highest increase since July 2008.
Measures to curb inflation so far have included four interest rate hikes since October and the 10th hike in the banks' reserve requirement ratio since the start of last year. Wang estimated there would be several more hikes in the reserve requirement ratio and two benchmark interest rate increases for the remainder of the year.
Food prices, largely blamed for the spike in inflation, are expected to ease but Wang said non-food prices would rise, China Daily said.
Another inflation worry is China's rising foreign exchange reserves, already the highest in the world. The People's Bank of China, the country's central bank, last week announced the reserves top $3 trillion, reaching $3.0447 trillion in the first quarter, indicating rising foreign investments and speculative capital inflows.
Wang said trade surpluses would return and that, along with increased foreign investment and speculative capital inflows, would make it harder to fight inflation.
The China Daily quoted a Barclays Capital report saying that despite reserve requirement ratio hikes, there is still plenty of liquidity.