CPI target may widen to 4%

China Daily, November 25, 2010

China may raise the inflation target for next year to 4 percent from 3 percent this year.

The government may officially unveil a tighter monetary policy stance as it makes effort to stabilize prices and fight against an inflow of speculative capital, the China Business News reported yesterday, citing an unidentified source.

A shift from a "moderately loose" to a "prudent" monetary policy may also be announced during the annual Central Economics Working Conference to be held soon, the source said. The annual target for new yuan loans may be cut to 7 trillion yuan (US$1.05 trillion) next year from 7.5 trillion yuan in 2010.

"China is becoming more tolerant of inflation," said Sun Lijian, a finance professor at Fudan University. "It also shows price rises may become harder to tame next year."

China's Consumer Price Index, the main gauge of inflation, surged 4.4 percent from a year earlier in October, the biggest gain in 25 months. In the first 10 months of this year, the CPI rose 3 percent, already equaling the government's target set at the start of the year.

Some analysts predicted the inflation rate may climb this month to as high as 5 percent, which means that China is set to miss its annual inflation target of 3 percent this year.

UBS AG raised China's inflation forecast to 4.5 percent next year from 3.5 percent while Standard Chartered Bank China expected it at 5.5 percent from 4 percent.

Stephen Green, head of research at Standard Chartered, said more monetary tightening is needed to tame inflation next year.

Measures expected include three or four reserve requirement rises in the first half of next year, monthly loan quotas, plus four more interest rate increases.