China said Tuesday its politically sensitive inflation rate hit its highest level in nearly three years in May, prompting Beijing to further restrict bank lending to stem a flood of capital.
The consumer price index jumped to 5.5 per cent year-on-year in May, far above the official annual target of four per cent, as food costs soared on power shortages and crippling droughts in some areas. It was the highest rate since July 2008, when the index rose by 6.3 per cent. While data underlined concerns over rising costs, it met forecasts and sent Asian stock markets to a higher level. Many nations in the region rely heavily on world’s second largest economy to help drive their own growth.
Royal Bank of Canada Senior Strategist Brian Jackson told AFP there were “no surprises” in the reserve ratio increase and it would likely be followed by an interest rate hike before the end of June, the fifth since October.
“We expect price pressures will ease later in the year, but in the very near-term, headline measures of inflation are above Beijing’s comfort level,” Jackson said in an earlier research note. “This suggests that more rate hikes are likely over the next few months. We also expect Beijing will tolerate further gains in the yuan against the dollar as part of its efforts to curb inflation.”