China's premier declares confidence on inflation

AP News
Posted: Jun 24, 2011 1:14 AM

China's premier expressed confidence Friday that Beijing can control surging inflation despite a government report this week that the rate will rise still higher this month.

"There is concern as to whether China can rein in inflation and sustain its rapid development. My answer is an emphatic yes," Premier Wen Jiabao wrote in a commentary Friday in London's Financial Times. He left Friday for an official visit to Britain, Germany and Hungary.

Inflation jumped to a 34-month high of 5.5 percent in May, driven by a double-digit rise in politically sensitive food costs. The country's planning agency said this week the June rate was expected to be higher than that.

Beijing declared controlling soaring living costs its priority this year and has been embarrassed as inflation climbed steadily despite four interest rate hikes since October and curbs on bank lending and investment.

Inflation is politically dangerous for the ruling Communist Party because it erodes economic gains that underpin the party's claim to power. Food costs are especially sensitive in a nation where poor families spend up to half their incomes to eat.

"China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked," Wen wrote.

Analysts blame stubbornly high prices on the dual pressures of higher demand fueled by rising incomes that is outstripping food supplies and a flood of bank lending as part of Beijing's response to the 2008 financial crisis.

The investment bank Nomura said in a report this week that June inflation might reach 6 percent after flooding in China's east and south damaged crops and pushed up prices of vegetables, fruit and pork.

The Cabinet planning agency, the National Development and Reform Commission, said Wednesday the June's price rise "will be higher than May," but gave no target. The agency said inflation should decline in the second half of the year.

"The overall price level is within a controllable range and is expected to drop steadily," Wen wrote. "We are confident price rises will be firmly under control this year."