China's politically sensitive inflation rate hit its highest level in nearly three years in May, the government said today, despite persistent official efforts to tame food and property costs.
The consumer price index rose 5.5% year-on-year in May, up from 5.3% in April and far above Beijing's annual target of 4%, as food prices soared following power shortages and crippling droughts in some regions. It was the highest rate since July 2008, when the index rose 6.3%.
The world's second-largest economy is 'still facing significant inflationary pressures' and must implement measures to contain prices, the National Bureau of Statistics said.
Analysts said that another interest rate hike was likely before the end of June, which would take the number of increases to five since October, followed by another move in the third quarter.
Other figures showed that output from the country's thousands of workshops and factories rose 13.3% from a year earlier in May, slightly slower than the 13.4% in April amid electricity shortages and a government clampdown on bank lending.
Fixed asset investment for the January-May period rose 25.8% on year, up from 25.4% in the first four months of the year. Retail sales rose 16.9% year-on-year in May.
Apart from industrial output, there were other signs the Asian powerhouse slowed in May - year-on-year car sales fell for the second month in a row, new loans dropped more than expected and manufacturing activity lost steam.
Some experts are concerned that authorities may have gone too far in trying to slow the economy, which grew a blistering 9.7% in the first quarter, and the tightening measures could trigger a hard landing.
China hikes reserve requirement ratio
China's central bank today ordered state-owned lenders to increase the amount of money they keep in reserve after inflation hit the highest level in nearly three years.
The People's Bank of China said in a brief statement it had increased the reserve requirement ratio by 50 basis points, marking the latest move by policymakers to rein in lending and tame soaring consumer costs.
China has been pulling on a variety of levers to contain inflation, which hit 5.5% year-on-year in May compared with 5.3% in April and far above the government's annual target of 4%.
Analysts had expected the government - anxious about inflation's potential to trigger social unrest - to further tighten monetary policy in the coming weeks.
