China may raise rates to tackle inflation

by Richard Kilner

Story link: China may raise rates to tackle inflation

China could see an interest rate rise in late March, in an effort to stave off inflation which is forecast to soar by as much as 8.7% in February.

The prediction comes from the Bank of China, which has also stated that the dire winter weather is still having a serious and negative effect.

Because of the winter storms, the worst seen in China for five decades, crops have been ruined, leading to rising food costs and increased inflationary pressure.

According to the Bank of China this may push food prices up from January’s levels by 6-7% in February.

A second source of inflationary pressure is the housing market, which accounts for approximately one seventh of the CPI meausre of inflation.

The Bank of China predicts that house prices will also keep rising for some length of time.

Although swifter yuan appreciation could be used to manage the situation, the bank prefers the option of interest rate rises.

Over 2007, Chinese CPI increased by 4.8%, and in January of this year alone has hit 7.1%, the highest for over a decade.