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Chinese inflation remains high and authorities cannot become complacent about fighting it, while a moderate slowdown in economic growth is benefitting the country, a vice governor of the central bank said on Saturday.
The speech by Su Ning appeared to confirm that a surprise easing of monetary policy on Monday was largely aimed to support weak Chinese asset markets, rather than to boost economic growth, and that policy might not be eased further any time soon.
Consumer price inflation fell to a 14-month low of 4.9 percent in August. But while Su acknowledged inflationary pressure had decreased, he said it remained too high for comfort. "Pressure for consumer price inflation persists and the rate of increase of consumer prices remains high, while rises in upstream goods prices are still passing through to downstream prices more than in the past," he told a financial conference.
"We still cannot relax our vigilance against consumer price inflation." Su said weakness in China's equities and real estate markets, partly due to the global financial crisis, "might gradually spread from the financial sector to the real economy".
Analysts believe this risk prompted the central bank to partially ease monetary policy this week. The benchmark one-year loan rate was cut but deposit rates were kept unchanged, while reserve ratios were lowered for smaller banks.
On Thursday, authorities announced an unprecedented plan to support the stock market through share purchases with government money. The announcement pushed the Shanghai Composite Index up more than 9 percent on Friday from a 22-month low.
But while Su acknowledged that some companies were struggling as the economy slowed, he described the slowdown as "appropriate" and said it was helping to resolve imbalances in the economy such as excessive energy use.
"Overall, the economy is developing in line with our macroeconomic control measures. The negative impact of the global economy and major natural disasters have not changed the basic situation of our economy, and we have achieved stable growth."
Su said authorities would adjust economy-cooling policies as necessary to counter weakness in the global economy. But he added that the government would maintain the "continuity and stability" of policies, implying that no dramatic easing was in store.
He also said wasteful use of energy and excessive factory emissions remained big problems for the economy. Some analysts believe China may liberalise domestic fuel prices as soon as late this year to encourage energy conservation, which could add to upward pressure on inflation. Annual gross domestic product growth slipped to 10.1 percent in the second quarter of this year, its slowest rate since the fourth quarter of 2005, but analysts generally expect it to stay above 8 percent next year.

Copyright Reuters, 2008

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