A man shops at a supermarket in east China's Shanghai, Jan. 21, 2008. China's consumer price index (CPI), the main gauge of inflation, hit a new high of 7.1 percent in January, according to the National Bureau of Statistics (NBS) on Feb. 19.(Xinhua Photo/Pei Xin) Photo Gallery>>>

    BEIJING, Feb. 19 (Xinhua) -- China's consumer price index (CPI) rose 7.1 percent year-on-year in January, its fastest pace in more than 11 years, and analysts forecast the development would mean further tightening measures by the government.

    The figure was the highest monthly level after September 1996.

    The January figure reported on Tuesday by the National Bureau of Statistics (NBS) was broadly in line with most forecasts, although it came in below the prediction of China's major state-owned bank. The Bank of China had forecast the CPI for January would be 7.5 percent or higher.

    The NBS said that food prices surged 18.2 percent in January, with grain prices up 5.7 percent and cooking oil prices up 37.1 percent. Pork prices, which had been cited as the major factor driving up the CPI in the second half of 2007, soared 58.8 percent in January, the bureau said.

    The bureau's chief economist Yao Jingyuan listed the normal price hikes ahead of the Spring Festival, the snow disaster that ravaged more than half of the country since mid-January and relatively low consumer price index in January 2007 as three major reasons leading to a new CPI high.

    "China's CPI of January 2007 only rose 2.2 percent year-on-year," Yao said, indicating it in part resulted in the sharp growth of CPI figure this January.

    Not all economists agreed to highlight the snow influence. Song Guoqing, a professor at the China Economic Research Center under the Peking University, said that the bad weather began too late in January to have had more than a limited impact on prices.

    "The influence of the snow disaster may emerge in the longer term," he said, predicting that February's CPI might exceed 8 percent.

    Song attributed January's CPI rise mainly to the excessive growth of money supply. Central bank measures, including raising interest rates and the bank reserve requirement ratio, hadn't been strong enough to rein in the fast-growing money supply since last July, he said. Although nominal interest rates had risen, "real interest rates are actually dropping."

    According to the central bank, the People's Bank of China (PBOC), M2 broad money supply, which covers cash in circulation plus all deposits, reached 41.78 trillion yuan (about 5.81 trillion U.S. dollars) as of the end of January, up 18.94 percent from a year earlier, indicating that liquidity remains strong in the Chinese economy.

    Last year, the PBOC raised the reserve ratio 10 times and interest rates six times to soak up liquidity. The reserve ratio has so far been raised once in 2008. Economists expect further interest rate hikes this year.

    "Interest rates will show an evident rise this year, although they might edge up only a little each time," said Yi Xianrong, a researcher with the financial research center of the Chinese Academy of Social Sciences (CASS).

    Liu Chaohui, an analyst with Guotai Junan Securities, also predicted that the reserve requirement ratio would be hiked further in the first quarter to reduce liquidity.

    Song also suggested that funds pouring into bonds and stocks betaken into account in the calculation of the general money supply, which, if calculated more precisely, would help curb inflation more effectively.

    "The central bank shall further tighten its monetary policies, put a brake on lending and accelerate the appreciation of the yuan," he added.

    China has made its currency regime more flexible by letting the yuan appreciate steadily. The currency has appreciated about 12 percent since July 2005, when the government started to de-peg the yuan from the dollar.

    On Tuesday, the yuan rose 93 basis points to a central parity rate of 7.1574 yuan per U.S. dollar, breaking the 7.16 mark for the first time.

    A faster appreciation of the yuan has been suggested by some economists to help cut the trade surplus. A stronger yuan would make exports more expensive in foreign currency terms.

    However, the trend toward a stronger currency has also raised concerns over a flight of foreign investment. "The accelerated appreciation of the yuan will force foreign investors to close their factories in China or transfer them to countries with cheaper wages, adding more pressure to employment," Yi said.

    Other indicators suggest growing price pressure, including the producer price index (PPI). The PPI, released on Monday, showed a 6.1-percent rise in January.

    "Rising production costs will increase inflation risks in the near future," said Fan Jianping, an economist with the State Information Center, a government think tank.

    Some economists and analysts predicted that it would be difficult to see a lower CPI in the first half of this year. They said that the first quarter would see the highest growth in inflation and the annual figure was likely to exceed 5 percent.

    The inflation rate was moderate over the past few years: 1.2 percent in 2003, 3.9 percent in 2004, 1.8 percent in 2005 and 1.5 percent in 2006. In 2007, the CPI rose 4.8 percent, its fastest pace in 11 years. The previous recent record for an annual CPI rise was 8.3 percent in 1996.