China central bank on guard over inflation in food prices

BEIJING, June 6, 2007 (AFP) – China’s central bank is on guard against the recent rise in food prices and might consider an interest rate hike to cool rising inflation, state media said Wednesday, citing the central bank chief. In a report to clients, Goldman Sachs forecast late last month that the rise in pork prices alone — 43 percent in 36 major cities in early May — was likely to drive inflation in the coming months to above 4.0 percent. “We are paying close attention to the recent rises in pork and egg prices,” the China Daily quoted Zhou Xiaochuan, governor of the People’s Bank of China, as saying.

“Food prices weigh heavily on the consumer price index (CPI). As long as they are having an impact on the value of the yuan, the central bank will adopt monetary policy to maintain its stability,” he said.

Zhou said the central bank would not rule out the possibility of using the full range of its monetary tools but the bank needed to look at the May index before making further policy adjustments, Zhou said.

The inflation figures are due to be announced early next week.

The central bank wants to ensure inflation does not creep above 3.0 percent but in March it rose 3.3 percent from a year earlier and was up