“…Runaway inflation remains the top risk in China’s economy as a massive earthquake last month is set to add upward pressure on prices in the short term, the country’s central bank said Tuesday…”

Source: AFP

Runaway inflation remains the top risk in China’s economy as a massive earthquake last month is set to add upward pressure on prices in the short term, the country’s central bank said Tuesday.

“A comprehensive increase in prices remains the biggest risk for the economy,” the financial research institute under the central bank said in a report published in the China Securities Journal.

Factors pushing up domestic prices, such as surging international energy and grain costs, remain unchanged and made controlling inflation — hovering near 12-year highs — an “arduous task,” it said.

The report said the May 12 earthquake in southwest China, which left nearly 90,000 dead or missing, could accelerate fixed-asset investment and increase short-term inflationary pressure.

Large-scale reconstruction in the quake-hit region is likely to boost fixed asset investment growth and prices of some raw materials due to higher demand for cement, steel and base metals like copper and aluminium.

But the overall impact of the quake on the economy would be “limited and short-lived and it will not change the fundamentals of the economy,” the report said.

China’s economy, the world’s fourth largest, grew by 10.6 percent in the first quarter from a year earlier, slower than 11.9 percent for all of 2007, partially because the US subprime crisis weakened demand for Chinese exports.

The report said that although the risk of economic overheating was moderating, the central bank would adhere to a tight monetary policy and focus on preventing excessively fast credit growth and taming inflation.