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Inflation hits 27-month high with CPI up 3.4%

By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-06-12 14:29

A vendor arranges watermelons at a market in Nanjing, East China's Jiangsu Province, June 12, 2007. Surging food prices boosted China's annual consumer price inflation to a 27-month high of 3.4 percent in May from 3.0 percent in April, the National Bureau of Statistics said on Tuesday. [Reuters]

On the timing of the next rates hike, some analysts expect it to happen before late June as CPI has been hovering at or above three percent for several months.

However, Shenyin Wanguo Securities chief analyst Gui Haoming put the timeframe in July or August. The central bank raised the interest rates just in mid-may and it usually will wait some time to see the feedback before another move, making rates hike in June unlikely, Gui explained.

Qiu Yanying of TX Investment Consulting Co. echoed Gui's points. Qiu expected the central bank to wait until next month's CPI is released before deciding on further interest rates hike.

Stock market

The analysts are divided on the impact of an interest rate rise on the stock market, which is gradually recovering after a series of slumps caused by the stamp tax hike announced on May 29.

The influence on the equity market will be limited, as an interest rates hike was expected, said Gui Haoming.

However, other analysts thought the market is currently at a sensitive period and an increase in interest rates will probably result in wilder fluctuation. They also pointed to the weak performances of banking stocks in the last few days, which they said was caused by expectation of a rates hike.