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Chinese central bank warns of increased pressure on price hikes

China's central bank has warned that although last year's consumer price index was a moderate 1.5 percent, there is increased pressure on price hikes in the coming year. A recent report by the People's Bank of China said that the risk for an upward price trend is building up, despite that the output capacity of some industries has been increasing rapidly and prices of staple goods in the international market have been falling. The CPI for January this year was 2.2 percent, which was 0.6 percentage points lower than that for the previous month. The country's CPI was on an upward trend in 2006 from 1.9 percent in January to 2.8 percent in December. The report said that there is considerable pressure on the rebound of investment and credit demands, and enterprises will see higher cost in labor, raw materials, energy, land, water and other resources products, largely due to the state's tightened control on environment protection, social security and work safety. A sample questionaire done by the central bank on urban depositors in the fourth quarter of 2006 showed that residents are not optimistic about price anticipations, and the expected price index rose to the highest since 1999 when the questionaire was launched for the first time. To alleviate inflationary pressures, the central bank announced last week to raise the required deposit reserve ratio for financial institutions by 0.5 percentage points to 10 percent.
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