CPI pushes past 5% as rise in food prices bites

China's consumer price index (CPI) in November rose by 5.1 percent year-on-year, the fastest increase in 28 months, giving rise to greater concern over tightening measures.

The main gauge of inflation climbed by 0.7 percentage point from October's 4.4 percent, driven by an 11.7 percent surge in food prices, which accounted for a third of the CPI basket.

A 5.8 percent hike in housing related prices also fueled inflation, said the National Bureau of Statistics (NBS) on Dec 11.

From January to November, inflation rose 3.2 percent year-on-year, surpassing the government's targeted ceiling of 3 percent for 2010.

Sheng Laiyun, spokesman for the NBS, said the food price surge contributed 74 percent to November's CPI, and the housing related price hike contributed 18 percent.

Fruit prices topped the list of food prices by increasing 28.1 percent year-on-year, followed by a 17.6 percent increase in the price of eggs, 14.7 percent in grain and 14.3 percent in edible oil.

"That indicated seasonal factors are responsible to the fast CPI increase, as the demand of these goods usually surges in winter," Sheng said.

The new figures showed that price hikes in non-vegetable food and non-food goods affected the index this time, unlike the CPI increase driven by fast-rising fresh vegetable prices in previous months.

"However, prices will stabilize in December and the following months as the government's measures on curbing inflation take effect gradually," Sheng said.

The producer price index (PPI), a measure of factory-gate prices, rose 6.1 percent year-on-year in November, from a 5.0 percent increase in October.

Wang Tao, head of China economic research at UBS Securities, said the CPI in December will decline because of a higher basis last year, but in the first half of 2011, the CPI year-on-year increase may stay about 4.5 percent, because the grain price hikes have a longer gestation period and the increase in prices of non-food goods is expected to continue.

She also predicted that the government would lift interest rates one more time this month.

To check inflation and absorb excessive liquidity, the central bank on Dec 10 raised the proportion of money that lenders must keep on reserve by 50 basis points for the third time within a month, after announcing the first interest rates hike in nearly three years in October.

The State Council, China's Cabinet, also vowed to cool prices by ordering local governments to take steps to rein in surging food prices on Nov 20.

But Dong Xian'an, chief economist with Industrial Securities, said there is still no evidence showing inflation has been kept at bay.

He suggested the government may have to raise interest rates by as much as 75 basis points to curb inflation.