China´s inflation reaches 16 months high by Zuzana Zelenakova

China´s inflation reached 16-months high in February and according to the National Bureau of Statistics consumer prices have risen as well. Consumer prices have risen 2.7 percent as compared to the 2.5 percent estimated by economists survey by Bloomberg News. Production has gone up 20.7 percent so far in 2010, which is the biggest jump in about 5 years. The Chinese government is currently facing a challenge of balancing efforts to boost growth while preventing overheating. And all that without raising interest rates. "All these measures about lending controls and rate hikes are to engineer a soft landing," said UBS economist Tao Wang. "If people are expecting 9 to 10! percent GDP growth from China, then a rate hike or two won't change that prospect at all." Chinese premier Wen Jiabao plans to hold inflation around 3 percent for the rest of the year after the financial markets have been overwhelmed by money aimed at overcoming the global recession. Experts say inflation might improve in March together with snowy and stormy weather that has caused 6.2 percent rise in food prices in February as compared to the previous year. Food prices are quite a delicate topic in China as lower classes of population spend more than 40 percent of their earnings on food. “More decisive policy tightening measures than those implemented so far are needed to prevent the economy from overheating,” said Song Yu and Helen Qiao, Hong Kong-based economists with Goldman Sachs Group Inc. the inflation issue is also closely linked to Chinese politics as the Communist Party based its power on economic gains. "Inflation is expected to trend higher in the n! ext several months before peaking around midyear," said Jing U! lrich, J P Morgan's chairwoman for China equities. Inflation rise in February touched also real estate market in China with costs jumping 10.7 percent in many cities.

related story (sgx16731): http://news.yahoo.com/s/ap/20100311/ap_on_bi_ge/as_china_inf...

by Zuzana Zelenakova for SigEx Ventures (http://sigexventures.com)

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