A top Chinese banking official warned that the country continues to face inflationary pressures despite a recent decline in the cost of living.
Su Ning, deputy governor of the People's Bank of China, noted that inflation slowed to 5.2 percent in September from a seven-year high of 5.3 percent in each of the previous two months. Su estimated that consumer prices rose 4.8 percent from a year earlier last month, and he forecast an inflation rate of 4.3 percent for November and 4.2 percent for December.
"The recent decline in the inflation rate is mainly because of a higher base last year and doesn't mean real consumer prices are falling," Su said in a speech on Sunday at a forum organized by the National Bureau of Statistics in Suzhou.
Meanwhile, China's fixed-asset investment is too strong and may have to be reined in to prevent further inflationary pressure, he cautioned.
"Investment accounts for too much of gross domestic product and may lead to unsustainable economic growth," he said. The central bank "will try to prevent investment from surging while ensuring that companies have reasonable access to capital," he added.
Investment in offices, factories and other fixed assets totaled 48 percent of China's gross domestic product in the first nine months of this year and may account for half of the full-year figure, Su said.
In the first nine months, investment jumped 28 percent, outpacing the economy's 9.5 percent growth.
The bank will favor the use of "market-based measures" to help steer the economy, Su said.
Last week, the central bank raised interest rates for the first time in nine years, stepping up efforts to rein in investment and damp inflation in the world's seventh-largest economy.
But the rate increase failed to persuade economists to cut estimates for growth in the world's fastest-growing major economy, a survey shows.
China's economy will probably expand 8.7 percent from a year earlier this quarter and 8.4 percent in 2005, according to the median forecast of eight economists surveyed by Bloomberg News. That would follow 9.1 percent growth in the third quarter. None of the economists changed their forecasts after the rate decision. All predicted further rate increases.
"In the long term it is a positive because although it will moderate Chinese growth, it will also prolong the cycle," said Tom Murphy, who oversees the equivalent of US$290 million at Deutsche Private Banking in Sydney. "Growth will remain strong, but not dangerously so."
Economists in the survey forecast China will raise interest rates by another 25 to 75 basis points by June 30 to curb inflation.