China inflation likely means more tightening

Chinese inflation hit 4.9 percent in January, up from 4.6 percent in December, though economists had expected it to be higher.

Even so price pressures – excluding the cost of food which is more volatile – were at their strongest in at least a decade.

That will force the China’s central bank to keep tightening monetary policy by raising interest rates again and restricting lending further.

Core inflation, not including food prices, jumped to 2.6 percent year-on-year, the highest in at least a decade, from 2.1 percent a month earlier.

There was some indication that previous tightening has started to have an effect. Money growth eased to its slowest pace in six months in January at 17.2 percent year on year.

The Chinese central bank raised interest rates last week for the second time in just over six weeks. It has also raised the amount of money banks have to hold in reserve seven times since the start of last year to try to mop up the excess cash in the economy that has fuelled inflation.

Copyright © 2012 euronews