China may start raising interest rates as prices gain

Consumer prices rose 2.5 percent from a year before, the most in 16 months, according to the median of 29 estimates in a Bloomberg News survey before tomorrow's report. While the gain was likely exaggerated by seasonal factors, economists project the momentum to continue, sending the rate to as high as 4.4 percent during the year, a separate survey showed last week.

Inflation, property speculation and risks for banks are among Premier Wen Jiabao's prime concerns after a record 9.59 trillion yuan (US$1.4 trillion) of loans jumpstarted growth last year. Central bank Governor Zhou Xiaochuan said March 6 that while stimulus policies must end “sooner or later,” China needs to be cautious in timing an exit because a global recovery “isn't solid.” “We believe the central bank sees inflation as a big danger to the economy,” said Wang Qian, an economist with JPMorgan Chase & Co. in Hong Kong.

Wang sees a 0.27 percentage point increase in the one-year lending and deposit rates as early as this month. In January, consumer prices rose 1.5 percent, the third monthly increase after a nine-month run of deflation.

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