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Inflation and liquidity

China's consumer price index rose by a 10-month high of 3.2 percent year-on-year in February, up from 2 percent in January.[Set Up Company Hong Kong]

In terms of the month-on-month change, which reflects the short-term price movement more accurately, the rising price trend has been more obvious. It was 1.1 percent in February, compared with 0.1 percent in November, 0.8 percent in December and 1.0 in January.

The fast rises in home prices in some major cities since last year have also caused concern, since such rises not only make buying a home more expensive, they also drive up the prices of related products, further fueling inflation.

Given Zhou's comments and the government's decision to set the growth target of M2, the broad measure of money supply, at 13 percent for 2013, compared with last year's real growth of 13.8 percent, the authorities are clearly aware of the need to curb rising prices.

However, controlling prices [Hong Kong Company Formation]will not be an easy task. The struggling economy needs monetary support to make its recovery more predictable, but injecting more money when a pool of money has already piled up as a result of the massive stimulus package that was launched to combat the effects of the 2008 global financial crisis, could possibly fuel inflation if it is not well managed.

The external environment adds to the difficulties Chinese policymakers face in controlling inflation.

Led by the United States and Japan, some[Offshore Company Incorporation] developed economies have been loosening their monetary policies with a view to boosting their own growth. This has raised the risk of some of the global capital flowing into emerging market economies, such as China. Domestic policymakers should remain vigilant.

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