China posts record inflation

Agence France Presse

Beijing, June 13:

China’s consumer inflation hovered at lows not seen for 19 months, removing most of the incentive for the government to raise interest rates, official data show-ed. The consumer price index rose by 1.8 per cent in May, extending into a second month a drop in the inflation rate to a level last experienced in October 2003, the National Bureau of Statistics said. “Given that the rate is below two percent, it would be hard for policy makers to make a case for a rate hike,” said Yiping Huang, a Hong Kong-based economist with Citigroup, “Usually, a rate closer to five per cent would give them a stronger case.” In the first five months of the year, consumer prices increased by 2.4 per cent year-on-year, compared with a 3.3 per cent rise in the first five months of last year. Price movements are being watched just as carefully in China as elsewhere — perhaps even more so because of the political implications. Runaway inflation helped bring down a Nationalist regime in the late 1940s. Since China hiked local currency lending rates for the first time in nearly a decade last year, the markets hav-e awakened to the fact that it is now again officially part of the central bank’s policy toolbox. But central bank chief Zhou Xiaochuan said this month that interest rates would stay the same at least over the near term. Andy Xie, a Hong Kong-based economist with Morgan Stanley, said that China may in fact be the country in the region “most vulnerable to cyclical deflation.”

Tax reduced

BEIJING: China’s finance ministry said on Monday it has reduced tax on shareholder dividends in an effort to boost the country’s bearish stock market. Investors now need pay income tax on only 50 percent of their stock dividends. The regulation is effective immediately. All dividend income had previously been taxable. — AFP