China released CPI data for April, which indicated that consumer prices increased by 5.3 percent on the year, beating expectations for a fourth consecutive month.
Vice Premier Wang Qishan said at talks in Washington this week that inflation is “the most pressing problem” facing China. Meanwhile the U.S. is pressing for faster gains in the Chinese currency.
The data firms expectations that there will be at least one more interest rate hike this year. The government aims for full-year inflation of 4 percent. Meanwhile a Bloomberg survey predicts the benchmark one-year lending rate to rise by a quarter percentage point to 6.56 percent by year end.
“Another slight uptick in inflation is possible by mid- year, but it seems that for inflation, the worst is nearly over for China,” Alaistair Chan, a Sydney-based economist at Moody’s Analytics said before today’s announcement.
The People’s Bank of China let the yuan gain 0.9 percent in April, the fastest pace of appreciation this year. Deutsche Bank AG estimates the yuan may appreciate at an annualized pace of 7 percent to 10 percent against the dollar over the next two months.
This should lead to a reduction of import costs before gains slow in the second half of the year as inflation drops “sharply.”