China’s annual inflation accelerated to a three-year high in June, increasing the risk that the central bank will keep raising interest rates as price pressures spread well beyond food and energy. The consumer price index for June rose 6.4 percent from a year earlier, slightly above economists’ forecasts for a 6.3 percent increase, with sharp rises recorded in food, consumer goods and property.
“The central bank may have to raise interest rate once more in the third quarter,” said Cui Yong, an economist with GF Securities in Beijing, adding that inflation is expected to accelerate further in July. At 3 percent, the rise in non-food prices was the highest since records began in 2002. Food prices rose 14.4 percent, driven by a spike in pork prices. Saturday’s report, which came three days after the People’s Bank of China hiked interest rates, suggested inflation pressures may persist even if global commodity prices fall.
Many economists expect China’s inflation to cool in the second-half of the year as world oil prices ease, but they are watching carefully for evidence that higher costs are filtering into a broader swathe of the economy. China’s policymakers must strike a delicate balance between sustaining powerful economic growth and ensuring inflation does not get out of hand. Some investors worry Beijing may clamp down too hard on borrowing costs, choking off growth in one of the world’s most reliable economic engines.
But if prices rise too much, it could stoke social unrest. Last month, Premier Wen Jiabao signalled that China would struggle to meet its 4 percent inflation target this year, underlining expectations that interest rates will rise further even as economic growth slows down.
