* China May inflation picks up to 5.5 percent, 34-month high
* India May inflation accelerates to 9.06 percent
* Beijing raises bank reserve requirements further
* India interest rate increase expected on Thursday
* Price pressures mount even as economies show signs of
By Tony Munroe and Kevin Yao
BEIJING/MUMBAI, June 14 Inflation in China and
India accelerated in May, prompting Beijing to lift bank reserve
requirements on Tuesday and keeping pressure on India to raise
interest rates later this week even as Asia's two big growth
engines show signs of slowing and recovery stalls elsewhere.
China's consumer price inflation hit a 34-month high of 5.5
percent, keeping inflation-fighting at the top of the agenda for
Beijing, which sees little chance of the current slowdown from
last year's 10 percent-plus growth turning into a hard landing.
In India, wholesale price index inflation was well above
forecasts at 9.06 percent, with a sharp rise in manufacturing
inflation from the previous month offsetting a slowdown in the
rise of food and fuel prices in Asia's third-largest economy,
adding to the likelihood of a rate increase on Thursday.
Fast-growing economies such as Brazil, China and India face
the potentially tricky task of managing rising inflation even as
growth cools from last year's scorching levels and the U.S.
recovery shows signs of losing steam, while Europe and Japan
Brazil raises its key interest rate last week for a fourth
straight time and indicated more rate rises could be on the way
Hours after the China inflation report, while many Asian
financial markets were still trading, the Chinese central bank
raised bank reserve requirements by 50 basis points to a record
21.5 percent, its sixth move this year, catching investors by
In past months, the People's Bank of China has often
announced policy tightening measures when Asian markets were on
closed, on holidays or long weekends.
"The rise is aimed mainly at curbing inflation," said Du
Zhengzheng, an analyst at Bohai Securities in Beijing. "The move
is likely to delay the next interest rate rise to the end of
this month or the beginning of next month."
The raft of Chinese data released on Tuesday suggested the
world's second-biggest economy was slowing, but not too quickly,
leaving room for Beijing to focus on fighting inflation,
By forcing banks to lock up cash which they would otherwise
have loaned out, Beijing hopes it can drain excess money from
its financial system and reduce inflationary pressures.
"We see more tightening going forward. We expect them to
raise rates again before going on hold in the third quarter,"
said Allan Von Mehren, chief analyst at Danske Bank in
"Today's inflation data was in line with what we had
expected, but it was pushed up by high food prices, and we
pretty much know that because of the base effect inflation will
come down as we get into 2012," he said.
Producer prices in May rose 6.8 percent from a year earlier,
above forecasts in a Reuters poll for a rise of 6.5 percent and
possibly signalling that price pressures will persist well into
summer as companies pass higher costs on to consumers.
China's May inflation reading was up from an annual 5.3
percent in April, and compared with forecasts for a 5.4 percent
In addition to tightening bank reserve requirements, China's
central bank has lifted interest rates four times since October
to quell inflation. The one-year lending rate is 6.31 percent
and one-year deposit rate is 3.25 percent.
In India, inflation continued to surprise on the upside even
though the central bank has raised rates nine times since March
2010, and the economy's 7.8 percent growth in the three months
through March lagged expectations and was its worst showing in
Economists polled by Reuters had forecast May inflation of
8.7 percent. Headline inflation for March was revised up to 9.68
percent from an earlier reported 9.04 percent, continuing a
recent trend of sharp upward revisions.
Fuel and food inflation, the usual culprits in India, slowed
in May from April despite a mid-month gasoline price increase,
but an expected hike in the price of regulated diesel and other
fuels to offset high global crude prices would continue to add
to upward price pressures.
Manufacturing inflation in India jumped to an annual 7.27
percent from 6.18 percent in April, adding to the expectations
that the Reserve Bank of India will raise rates by 25 basis
points on Thursday, its 10th increase since March 2010.
"The big surprise is mainly because of the sharp increase in
manufacturing prices, which implies that core inflation is
picking up. This cements the case for a 25 basis points rate
hike on Thursday," said Nomura economist Sonal Varma.
Economists and policymakers have been cutting their growth
outlooks for India in recent months after the economy grew 8.5
percent in the fiscal year that ended in March. Many private
economists forecast growth this year at below 8 percent.
(Editing by Kim Coghill)