Inflation was high on the agenda at China’s National People’s Congress (NPC) in March after it emerged that consumer price index (CPI) rose 8.7% year-on-year in February, a 12-year high.
Food prices, pumped up by strong demand and severe winter weather around the Chinese New Year holiday, were again the key driver. The usual suspects: cooking oil and pork – up 41% and 63.4%, respectively – did their part, but the higher prices also made themselves felt elsewhere. Guizhou distiller Kweichow Moutai, for instance, raised prices of its liquor 12% as the cost of raw materials increased.
Premier Wen Jiabao told the NPC that the government would focus on curbing inflation and cooling down the overheating economy in the year ahead.
Wen predicted relatively sober GDP growth of 8% in 2008. He set an inflation target of “around” 4.8%, but said that “upward pressure on prices will remain great.”
There was some disagreement, however, about how the government would keep those pressures in check. While many observers expect China to allow the yuan to strengthen to fight inflation, the governor of the People’s Bank of China, Zhou Xiaochuan, said in early March that doing so would not be the most effective solution.
Zhou nonetheless said that China has “room for all monetary policy tools,” including increasing interest rates and banks’ reserve ratio requirements.
Shortly after the NPC session closed, the reserve ratio was increased by 50 basis points to 15.5%.