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China Watching Inflation After Food Prices Rise

China's central bank is keeping a close eye on inflation after a recent spurt in the price of pork, eggs and other food, Zhou Xiaochuan, governor of the People's Bank of China, said on Tuesday.

The PBOC might decide on its next policy steps after seeing consumer inflation figures for May, Zhou told reporters on the sidelines of a banking conference.

"We are closely watching the recent price rises in pork and eggs. They are being interpreted in many different ways. We are paying close attention to this issue, but we need to look at the overall CPI," Zhou said.

The CPI figures are due next Tuesday.

Annual CPI inflation dipped to 3.0% in April from 3.3% in March. Last month, however, pork prices soared to a 10-year high as a result of disease and a jump in the cost of feed corn and spilled over to other meats.

Food makes up about a third of the CPI basket.

"We know that food accounts for a very important part of the CPI, but we won't get the overall CPI figure until around the 10th of the month, and we can only make a decision when we have the May figures. But we are really paying very close attention to the whole situation," Zhou said.

Goldman Sachs expects food prices to push up CPI inflation to 4% in coming months.

Asked whether the central bank would increase interest rates again in the near future, Zhou said: "As I said earlier in Shanghai, the central bank will never rule out the possibility of using various monetary tools."

The central bank has raised interest rates four times in the past 14 months, increased banks' required reserves eight times in a year and stepped up its issuance of bills to mop up cash pouring into the banking system from China's huge trade surplus.

Zhou said the PBOC was determined to safeguard the purchasing power of the yuan. "There are many reasons for price changes, including money supply, international market movements, domestic supply and demand and so forth," Zhou said.

"As long as they are having an impact on the value of the currency, the central bank will use monetary policy to cope with it. Monetary policy will be adapted to maintain the stability of the currency," he said.

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