10 Aug 2011

Inflation up in China

11:44 am on 10 August 2011

Inflation in China was higher than expected in July, despite a series of attempts by the government to rein in prices.

Data issued on Tuesday showed that consumer prices in July rose 6.5% compared with the same month last year.

The People's Bank of China has raised interest rates five times since October 2010 in a bid to control prices.

The amount of cash that banks must hold in their reserves has also been raised several times in the past year in an attempt to curb lending.

Radio New Zealand's economics correspondent says there are fears the turmoil on Western markets could hit the Chinese economy, while rising inflation is cutting its room to move on interest rates.

Rayonier, an exporter of New Zealand logs to China, says the credit squeeze has hit sales, as Chinese developers reduce their work.

Moodys Analytics economist Matthew Circosta says the new inflation figures show the problem is yet to be tamed.

He says China is unlikely to raise interest rates given the uncertainty on world markets, but it could be difficult to cut them to stimulate demand if the world economy nosedives.