Report: China CPI to rise 7.2% in 2008

China's consumer price index (CPI),the main gauge of inflation, is expected to rise 7.2 percent year on year in 2008, according to a Bank of China (BOC) report on Wednesday.

The report, released by the lender's global financial market department, suggested the central government adopt more tightening monetary policies to further tame inflation, drain liquidity and curb excessive investment.

China had been under inflationary pressure this year as the CPI increased 7.7 percent in May from the same month last year. The figure was 8.5 percent in April, up from 8.3 percent in March and near the 12-year high of 8.7 percent in February.

The producer price index, another measure of inflation, accelerated to 8.2 percent in May after gaining 8.1 percent in April, according to the National Bureau of Statistics.

The BOC predicted in an earlier report CPI in 2008 would increase 6.8 percent year on year. However, the report said "Rising prices of gasoline, coal oil and electricity will push up the previously estimated figure."

China's National Development and Reform Commission had raised the price of refined oil by 1,000 yuan per tonne as of June 20.

The report advised the government raise interest rates and reinin appreciation of the yuan, the country's currency. China was very likely to raise interest rates in the fourth quarter, it said.

The central parity rate of the yuan, or renminbi (RMB), was set at 6.8489 yuan on Thursday against the U.S. dollar, since the country un-pegged its currency from the greenback in July 2005.

The yuan has risen more than 6.65 percent against the U.S. dollar so far this year, in comparison with the 6.9 percent gain last year, and has broken its own record value 52 times.

"A slower appreciation in the currency will help to make full use of the domestic labor force, which is China's most sufficient resource," the report explained.

It also forecast inflation might show a deceleration in June as food, vegetables and fruit prices dropped. The CPI was expected to rise 7.3 percent in June year on year.

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