China's economy will continue to grow, but inflationary pressures must be contained, the central bank said today.
Growth will top 11 per cent for 2007, and full-year consumer price inflation will average about 4.5 per cent, the People's Bank of China said in its third-quarter monetary policy report.
But with inflation running near decade highs, hitting 6.2 per cent in September, the central bank expressed its concern that price pressures could become more entrenched.
"Currently, with food prices pushing up CPI, our consumers' expectations towards inflation are growing, and will probably further push up inflation," the central bank said.
China's trade surplus and investment were still growing too quickly, fuelling liquidity that, together with higher food costs, lay at the root of inflation, the report said.
But the central bank also said it was important to press ahead with pricing reforms for natural resources, including oil and water.
China unexpectedly raised domestic fuel prices by up to 10 per cent last week, following weeks of worsening shortages at the pumps that resulted from the authorities' tight grip on the market.
Amid a chorus of international calls for China to revalue the yuan, the central bank reiterated its intention to make the currency more flexible while keeping the exchange rate "basically stable".