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China faces inflation risk in 2008, CPI seen up 6.5% - Credit Suisse

(Agencies)
Updated: 2008-01-24 09:11

Inflation in China is likely to remain high this year, Credit Suisse said, contrary to a widely held view that the consumer price index (CPI) will ease as food prices drop back.

In a note, Credit Suisse said it expects China's CPI to average 6.5 percent in 2008, whereas the market consensus is around 4.0 percent.

Credit Suisse said it expects China's 2007 CPI to be up 4.7 percent.

"There is a genuine risk that the reported CPI inflation rate could rise further from the current level," the note said.

"While the current CPI inflation could technically be argued to be due to largely rising food prices, which could in turn be due to some supply disruption factors, we believe that it is undeniable that inflation expectation is rising rather sharply in China, which would likely lead to stronger wage demand, and create (a) vicious cycle," it said.