News: China inflation hits 10 year high

Thu, 13 Sep 07

Pressure on China's central bank to increase interest rates has increased in the wake of news that the country's rate of inflation has risen to a ten year high and the trade gap widened...

According to the National Bureau of Statistics, consumer price inflation rose from 5.6 per cent in July to 6.5 per cent in August, mainly due to an 18.2 per cent increase in the cost of food.

Furthermore, the trade gap now stands at $24.97 billion for the month - an increase of 33 per cent.

Despite the fact that the central bank has already raised interest rates four times this year, analysts still expect a further enhancement in the near future.

"Going forward we believe there are nontrivial risks that inflation may continue to edge up," commented Goldman Sachs.

"We expect the central bank to respond to higher inflationary pressures with decisive tightening measures, including two interest rate hikes to the benchmark lending and deposit rates by the end of this year."

Meanwhile, Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong, told Bloomberg that should the government allow inflationary pressures to go on unchecked "stock and property bubbles will get bigger and eventually crash".

Further analysis of the Chinese economy could be supplied by Aranca, an end-to-end provider of on-demand, custom investment, business and economic research.

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