china data in line with forecasts

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    UPDATE 1-China inflation hits 34-mth high in May, rate rise seen
    10:40pm EDT
    * May data broadly in line with expectations

    * Industrial output rises 13.3 pct on year

    * Analysts see risk of rate rise this month

    * Policymakers say controlling inflation a priority

    By Kevin Yao

    BEIJING, June 14 (Reuters) - China's inflation accelerated in May to a 34-month high of 5.5 percent, slightly above expectations, supporting the case for tighter monetary policy even as there are signs that economic growth is slowing down.

    Bringing inflation under control is a top priority for China's leaders, who see little chance of the current slowdown from 2010 growth of more than 10 percent turning into a hard landing.

    Industrial output in May rose 13.3 percent from a year earlier, just above expectations for an increase of 13.2 percent. But the pace was the slowest since November and underlined other data suggesting the world's second-biggest economy is slowing down.

    "CPI reached a new record, increasing concerns of another interest rate rise," said Xianfang Ren, an economist at IHS Global Insight in Beijing.

    Analysts expect inflation to pick up again in June, some say to around 6 percent, prompting the central bank to raise interest rates as soon as this month for the fifth time since October.

    "We expect the central bank to raise interest rates next week," Ren said.

    Before the data was released, both Wei Yao, China economist at Societe Generale in Hong Kong and Mingchun Sun, economist at Daiwa Capital Market, forecast a rate rise this month.

    Analysts had expected inflation to be 5.4 percent in May, a Reuters poll showed. Consumer prices rose 5.3 percent in April from a year earlier.

    Inflation has largely been fuelled by a rise in food prices, exacerbated of late by a severe drought in farming heartlands. Some economists say inflation is also the result of China's massive stimulus during the global financial crisis.

    Like elsewhere, China is coping with a rise in global commodity prices, which are adding to inflationary concerns for policymakers.

    China's central bank has already raised banks' required reserves eight times and lifted interest rates four times since October to quell inflation.

    China's one-year lending rate is currently 6.31 percent and its one-year deposit rate is 3.25 percent.


    Zhang Zhuoyuan, an economist at the Chinese Academy of Social Sciences, a top government think-tank, expects inflation to top 6 percent in June and in remarks reported at the weekend he called for faster steps to push real interest rates into positive territory.


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    China's economy expanded in 2010 by 10.3 percent, a pace that slowed in the first quarter to 9.7 percent.

    But data has suggested a further slowdown in the economy since then. Purchasing managers' surveys showed the factory sector expanded in May at it slowest pace in at least nine months.

    Worryingly for financial markets, China's slowdown has occurred alongside a weakening of global growth as Europe struggles with its debt crisis and the United States contends with stubbornly high unemployment. An earthquake has knocked Japan into recession.

    A raft of Chinese data released on Tuesday was broadly in line with expectations. May retail sales rose 16.9 percent from a year earlier, compared with expectations for an increase of 17.0 percent.

    Fixed-asset investment between January and May rose 25.8 percent from a year earlier, against expectations for a rise of 25.2 percent.

    China's money growth slowed to a 30-month low in May and banks extended fewer new loans than expected, data on Monday showed.

    "Overall, China's economic growth is easing gradually, while consumer inflation is still within control. The central bank will raise interest rates again this month, but there will be no further rate rises for the rest of this year," said Xu Gao, an economist at China Everbright Securities in Beijing. (Additional reporting by Beijing Economics team; Editing by Neil Fullick
 
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