Chinese Premier Wen Jiabao signalled for the first time that China would struggle to meet its four percent inflation target this year, underlining expectations that interest rates will rise further even as economic growth slows down.
Wen, who is travelling in Europe, was quoted by Hong Kong media on Monday as saying that while he sees the Chinese economy growing above 8-9 percent this year, it was hard for China to keep inflation under 4 percent in 2011.
“China’s financial situation will still be among the best in the world this year, with economic growth kept above 8-9 percent, and CPI controlled under five percent,” Wen told Hong Kong television media during the England leg of his Europe tour. Wen’s latest comments sounded somewhat less sanguine than his remarks on Friday, when he said China’s inflation was firmly under control this year and should cool steadily.
However, they may not alter investors’ thinking about monetary policy. Many economists had assumed China would overshoot its 4 percent target given that the inflation rate has stayed well above that mark since January, and is expected to peak at 6 percent in June or July. Inflation rose in May to a 34-month high of 5.5 percent.
Economists polled by Reuters in June predicted China would stay in a tightening mode, raising its benchmark lending rate by one-quarter of a percentage point and its deposit rate by a half-point this year. Investors are watching carefully to see whether Beijing can ease inflation without stifling growth.
A string of disappointing readings on factory activity and exports raised concerns that China’s economy may be slowing down more sharply than expected.
