High CPI and easing expansion pose a fix
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Chinese policymakers will face a dilemma trying to fine-tune monetary policies to tackle inflation which may climb to a new high in May even as economic growth slows.
The Consumer Price Index, the main gauge of inflation, may rise 5.5 percent to a three-year high from a year earlier in May, said Tang Jianwei, a senior macroeconomic analyst at the Center for Financial Research under the Bank of Communications. China Galaxy Securities said in a note that inflation may rise between 5.3 percent and 5.5 percent in May, and even by more than 6 percent in June due to increasing food prices amid severe droughts in central China last month.
"The inflation rate is now growing faster from a small moderation despite various measures taken," said Pan Xiangdong, chief economist at China Galaxy.
Sun Lijian, an economics professor at Fudan University, said rising inflation and slower economic growth placed Chinese policymakers in a difficult situation.
"If both inflation and the economy expand faster, it's an easy decision for China to continue tightening its monetary policy, (such as) possibly raising interest rates again," Sun said. "But now, it's a subtle situation."
The National Bureau of Statistics will release the CPI, along with other key economic data, next Tuesday.
The People's Bank of China said last week in a report that it will continue its prudent monetary policy this year.
A widely-expected interest rate hike did not occur during the Dragon Boat Festival holiday, possibly because it will hurt economic growth which has eased. China's economy rose 9.7 percent from a year earlier in the first quarter, down from 9.8 percent in the fourth quarter in 2010.
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