China's government said it will raise its inflation target for 2011 to 4% from this year's 3%, acknowledging the upward momentum of consumer prices despite recent tightening measures.
The altered inflation target was reported Tuesday by Chinese state-run television, citing Zhang Ping, the head of the National Development and Reform Commission, China's main economic planning agency. It follows the release of official data Saturday showing that the consumer price index jumped 5.1% in November from a year earlier, the fastest rise since July 2008 and well above economists' expectations.
The annual target is a rough guide and 2010 wouldn't be the first year Beijing has overshot it. Nevertheless, China's struggle with inflation is being widely watched abroad, with global markets occasionally jolted in recent months by fears that Beijing could tighten too quickly and derail growth in an economy that has accounted for a growing share of global economic expansion.
An increase in China's official inflation target to 4% has been widely tipped in local media reports, though analysts differ somewhat over such a move's significance.
'Many observers view this as a sign that the government has raised its tolerance level for inflation and, implicitly, would not tighten as aggressively as it would otherwise,' Goldman Sachs China economists Yu Song and Helen Qiao wrote in a note Monday. 'Instead of viewing the annual CPI inflation target as an expression of the government's tolerance or comfort level, we view it more as a target which is practical and desirable to achieve realistically.'
China's government has made similar moves before. In late 2007, authorities raised the inflation target for 2008 to 4.8% from 3%. But they continued to implement tightening measures until the middle of that year, when a weakening global economy caused Beijing to start reversing course.
China's central bank raised benchmark interest rates in October for the first time in almost three years. Last week, it increased the share of deposits that banks must set aside rather than lend, known as the reserve-requirement ratio, for the third time in a month.
Earlier this month, Communist Party leaders moved to formalize their changing policy by saying China will shift to a 'prudent' monetary policy next year from the 'moderately loose' approach it has been employing.
Yu Bin, director of macroeconomic research at the State Council Development Research Center, a government think tank, said Tuesday he expects new local-currency loans to total slightly less than 7.6 trillion yuan ($1.14 trillion) next year, in line with this year's amount.
Economists say China's inflation has been fueled in part by an explosion in liquidity in recent years as state-controlled banks pumped credit into the economy as part of the government's stimulus efforts. Many analysts have been expecting Beijing to scale back bank lending next year as part of its tightening efforts. No official lending target has yet been disclosed.
The National Development and Reform Commission's Mr. Zhang on Tuesday also reiterated Beijing's longstanding, and largely symbolic, forecast of 8% growth in gross domestic product in 2011. Growth has routinely surpassed the target in years past, and most economists expect it to do so again next year.
