It has taken me so long to post the article that I also post Friday's Yuan Parity rates - 7 yuan per dollar, my expectation for June, will be met far earlier I now expect.

China's Inflation Rate Hits 8.7%

BEIJING -- Consumer prices in China rose 8.7% in February, soaring far faster than expected, ratcheting up pressure on Beijing to introduce even more tightening measures.

The consumer-price index gained steam from increases of 7.1% in January and 6.5% in December, marking the fastest year-to-year increase since May 1996.

February's inflation rate was also much faster than the 7.8% average forecast of nine economists surveyed by Dow Jones Newswires.

One-time factors played a role in the faster rate. The weeklong Lunar New Year holiday raised demand for food just as heavy snowstorms hindered transportation, creating supply bottlenecks and driving up food prices 23.3%, this being the key behind the jump in overall inflation.

China has said taming inflation is one of its priorities. But yesterday's data made it clear inflation will have to fall considerably if Beijing is going to hit its 4.8% target for the year, though Central Bank Vice Governor Hu Xiaolian said Beijing would use various tools to fight it.

But China suffers structural inflation, said Han Yongwen, a top economic planner, and rate increases can do only so much to curb it.

Still, analysts said Beijing would probably resort to more tightening measures, including rate increases, noting that the pickup in inflation comes at a challenging time.

The Chinese economy continues to boom, but a slowdown in overseas economies could pose risks. Data Monday show the January trade surplus, or margin by which exports exceed imports, sharply shrank as export growth slumped.

"It may be logical for China to give up some of the external growth to solve the inflation problem, which could become a political and social problem as well," said Chris Leung, a DBS economist, predicting two or more interest-rate increases this year.

Commerce Minister Chen Deming said China will have a hard time lowering inflation from a nearly 12-year high to 4.8% for the year.

To be sure, there are indications China's inflation problem isn't widespread. Prices of items other than food and energy rose 1% from a year earlier in February, still in line with trends in the second half. Nonfood prices were up 1.6% in February, compared with 1.5% in January.

Some economists said they expect inflation to taper off later this year as food-price gains slow. That means "authorities have no incentive to take draconian demand-tightening measures," said Jonathan Anderson, a UBS economist.

Still, China's rapid growth -- the economy expanded 10% or more in each of the past five years -- and flush liquidity have been boosting demand for goods and services, creating inflationary risks. Workers seeking higher wages could also add to inflation, analysts said.
http://online.wsj.com/article/SB120525976644727735-search.html?KEYWORDS=China&COLLECTION=wsjie/6month  (subscription required)


The YUAN rates:

DOW JONES NEWSWIRES
March 13, 2008 9:17 p.m.

The China Foreign Exchange Trade System published the following official central parity rates for major currencies against the yuan Friday:

 
                        Friday      Thurdsay 
USD/CNY                 7.0882      7.0970 
HKD/CNY                 0.91038     0.91109 
JPY/CNY (per 100 yen)   7.0191      6.9808 
EUR/CNY                11.0579     11.0184 
GBP/CNY                14.3890     14.3799 
 

The daily central parity rate for the yuan versus the U.S. dollar is the weighted average of prices given by market makers. The highest and lowest offers are excluded from the calculation.

In each daily trading session, the central bank allows the dollar-yuan rate to move no more than 0.5% above or below the central parity rate. Other currency pairs are allowed to move as much as 3% above or below the central parity rate.

 Source: www.chinamoney.com.cn