(China Daily)
Updated: 2007-09-12 14:00

China's mounting inflationary pressure should guarantee more tightening measures.

The country's consumer prices rose by 6.5 percent year-on-year last month, marking the highest headline inflation in more than a decade.

The jump in inflation was much more than expected after it gained 5.6 percent in July. However, it seems still too early to predict when the upward march of the consumer price index (CPI) will come to an end.

The CPI inflation has so far been driven primarily by higher food prices.

Latest statistics show that food prices, accounting for one-third of the CPI, soared by 18.2 percent last month over the same period last year while non-food price inflation remained low at 0.9 percent.

Since this inflation gap between food and non-food prices has been observed for months, some people have shrugged off serious inflation, believing the country is experiencing only some structural short supply, such as that of pork.

That argument appears reassuring to the public who are suffering increasingly from higher pork and other food prices. It would be a desirable outcome if the current acceleration in food price inflation should prove temporary and start easing in the months ahead as imports and domestic production of food increases.

The good news is that there is still no sign of food price inflation spreading to non-food items. But the bad news is that the continuously sharp rise in food prices has already bitten deep into the pockets of the people, especially those of low-income households.

The possibility is high that the decade-high CPI inflation last month will push up average inflation in 2007 significantly above the 3.0-percent annual inflation target set by the central bank. And as consumer price rises outstrip returns on bank deposits, more households will switch savings to stocks and property, making it harder for the government to prevent asset bubbles. The benchmark one-year deposit rate stands at 3.6 percent.

Hence, it is high time for policymakers to turn more hawkish on inflation.

The central bank has steadily stepped up its efforts to rein in inflation. For instance, it has raised interest rates four times so far this year, with the latest one on August 21.

Nevertheless, as inflation continues to surge, policymakers should respond more aggressively and promptly.