Wen says inflation priority, more tightening seen

SHANGHAI: China's premier and the country's central bank governor vowed yesterday to prevent stubbornly high inflation from upending the economy, reinforcing expectations for more increases in interest rates and bank reserve requirements.

Premier Wen Jiabao said tackling inflation was the government's top policy priority while central bank governor Zhou Xiaochuan said the authority needed to make maintaining price stability “more prominent and important.”

Inflation rose to a three-year high of 6.4% in June, data showed on Saturday. The comments marked a fresh attempt to show the inflation fight was far from over and the government was determined to bring prices back under control, analysts said.

“If they signal any comfort with inflation, and inflation is as high as it is now, they could create an environment in which people would panic, and they can have a real problem on their hands,” said Tim Condon, head of Asia research at ING in Singapore.

Wen declared curbing price pressures as the top priority in China's version of a “State of the Union” address in March, when inflation was 1 percentage point lower than June's level.

The Communist Party is worried that rising prices could spill over into public protest. Wen said in March that inflation could threaten social stability in the world's second-biggest economy.

Meanwhile, China's current account surplus plunged 21% year-on-year in the first quarter, revised government figures showed yesterday a much larger fall than previously announced.

The current account surplus the broadest measure of trade with the world reached US$28.8bil in the first three months of the year, the State Administration of Foreign Exchange said in a statement.

That was US$1bil less than the figure published in May, meaning the fall from the same period in 2010 widened to 21% from 18%. Agencies