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China's leaders inflation focus

China's leaders inflation focus
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China’s premier and the country’s central bank governor have both said they will now allow stubbornly high inflation to cause problems for the economy.

That has increased expectations that Beijing will further raise interest rates and require banks to increase the amount of money they hold in reserve.

The Communist Party is worried that rising prices could spill over into public protest. China’s inflation has largely been driven by rising food costs, which rose 14.4 percent in the 12 up to June.

Premier Wen Jiabao said tackling inflation was the government’s top policy priority while central bank governor Zhou Xiaochuan said the authority needed to make maintaining price stability “more prominent and important”.

Inflation rose to a three-year high of 6.4 percent in June, according to government figures just released. The comments mark a fresh attempt to show the inflation fight is far from over and the government is determined to bring prices back under control, analysts said.

“We must treat stabilising overall price levels as the top priority of our macro-economic controls and keep the direction of macro-economic adjustments unchanged,” Wen said in remarks reported on Monday by the central government’s Internet portal.

He said the government would try to stabilise prices of pork, a staple meat for Chinese and the most closely watched item in controlling inflation, by boosting the supply of hogs. Pork prices in June shot up 65 percent from a year earlier, official figures show.

China would maintain a “prudent policy” to bring prices back under control while trying to avoid causing big swings in economic growth, Zhou said.

“The most prominent problem in macro-economic operations is the relatively big inflationary pressure and still strong inflationary expectations,” Zhou wrote in the latest edition of China Finance magazine, published by the People’s Bank of China.

“We must make it more prominent and important to maintain basic stability of the overall price level, and pay attention to price stability in a wider scope,” Zhou said.