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Inflation Rises in China as Economic Growth Shows Signs of Slowing

Inflation Rises in China as Economic Growth Shows Signs of Slowing
Inflation Rises in China as Economic Growth Shows Signs of Slowing
Peter Simpson

China's inflation rate has increased beyond government targets as the country's economic growth slowed last month. The National Bureau of Statistics said Friday the annual rate of inflation rose to 3.1 percent in May - up from April's figure of 2.8 percent. The May rate exceeds the government's 3 percent target for price increases this year.

Also in May, China's rebound from the global slump slowed, with growth in factory output and investments easing moderately.

Any slowdown in the economy produces risks for the government as it attempts to keep growth on track, to provide jobs. At the same time, Beijing needs to avoid having the economy grow too rapidly, which can cause prices to rise for key items such as food and housing.

The May figures expose growing concern within the government over how to control rising inflation in a highly complex economy said Tom Miller with the economic and research consultants GaveKal Dragonomics in Beijing.

Miller said the figures may not capture the true inflationary pressure in the economy, adding that price increases have yet to peak.

"The reasons for this is that you have had this enormous monetary stimulus and there's loads and loads of liquidity sloshing about in the economy," said Miller. "And you expect inflation to be rising and you'd expect it to hit its peak this year in about three or four months time."

To protect the economy from the worst of the global financial crisis over the past two years, Beijing's created a $586 billion spending plan, and loosened monetary policy. Some economists expect China's economy to slow as the initial impact of the stimulus wanes.

But the risk of rising inflation has prompted concern that Beijing might increase interest rates or take other steps to ease economic growth, which hit 11.9 percent in the first quarter. The government already is trying to ease the booming the housing market by tightening access to credit.

Such steps could affect the United States, Europe and others that look to China - the world's third biggest economy - to help drive global demand for exports.

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