China’s Zhou Faces Threat of Inflation `Flood’ after Earthquake

From Bloomberg:

Six months after the People’s Bank of China signaled a stepped-up battle against , it has only fallen further behind in the fight.

With inflation the highest in almost 12 years, central bank Governor Zhou Xiaochuan has lifted interest rates once, by just 0.18 percentage points, since the declared in December it was shifting to a “tight” monetary stance. That means price increases are outpacing the return on loans and deposits, encouraging people to borrow and spend more.

Now, the country’s most powerful earthquake in 58 years makes the task of taming prices even harder by increasing demand for credit and investment to finance reconstruction. The result may be even faster inflation, ultimately requiring stringent measures to put the brakes on an economy that’s likely to account for a quarter of global growth this year.

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