China think tank warns inflation pressures building

Thursday, 9 December 2010 00:01 - - {{hitsCtrl.values.hits}}

BEIJING, (AFP) - A Chinese government think tank has warned inflationary pressures are building in the economy and consumer prices will remain “relatively high” in 2011, amid growing expectations of a rate hike.

The Chinese Academy of Social Sciences also cautioned that the world's second-largest economy was at risk of overheating next year “if the growth speed is not controlled properly”, Xinhua news agency said Wednesday.

The report came as Beijing brought forward the release of key economic data for November to Saturday from Monday, fuelling speculation that policymakers plan to raise interest rates in the coming days.

“The inflationary pressure is building up and excess liquidity would be the major factor driving the CPI (consumer price index) up in the next several years,” CASS said in its 2011 Economic Blue Paper.

The think tank forecast consumer prices to rise 3.2 percent over the entire year of 2010 -- above the government's full-year target of three percent -- but did not provide an estimate for next year.

“Surging grain prices in the international market and the rising cost of growing grains in China would keep the prices of consumer goods at a relatively high level,” the report said.

Prices for manufactured goods were also expected to rise next year.

China last Friday pledged to shift its monetary policy stance to “prudent” from “relatively loose” next year, signalling new interest rate hikes are on the way.

The announcement came amid growing fears among officials and consumers over rising prices and soaring food costs.

China's consumer price index rose 4.4 percent year-on-year in October -- the fastest pace in more than two years -- with the prices of 18 types of vegetable increasing more than 60 percent.