Chinese officials signaled they might raise interest rates to curb the
inflation epidemic sweeping across the growing superpower.
"We will combat demand and prevent rapid economic growth from turning
into overheating," Vice Finance Minister Li Yong said at the Asian
Development Bank's annual meeting, Bloomberg reported.
Yong said the government would tighten monetary policy - reducing money
supplies, investment ratios and more to meet its inflation target of 4.8% this
year. Yong has his hands full because consumer prices surged 8% in the first
In addition, Yong said the government would increase its investments in the agricultural sector by 20% this
year, Reuters reported.
Not Just China
China certainly isn't alone with its inflation problem. Jean-Claude Trichet,
president of the European Central Bank, said all countries were affected by
significant inflation risks caused by the still rising prices of food, energy
and other commodities.
"Food prices (are) one of the issues we mentioned constantly,"
Trichet told Reuters. "It is an additional element
adding to the energy prices, to the metal prices and a number of commodity
prices and that is really at a global level a very important phenomenon."
This isn't just a consumer problem. Investors - especially those who have
invested in the soaring Asian indices - are seeing inflation nipping away at
Last week, JPMorgan Chase & Co. (JPM) reduced its 2008 forecast for several major Asian indices by
"Investors' focus needs to move to increasing policy risk as governments
manage a poorer growth-inflation balance," its report said. "The downside risk
is that higher inflation reduces domestic demand and investment, as disposable
income and profit margins are squeezed."