China's inflation fears are growing with its consumer price index (CPI) rising by the highest monthly level in over two years in May, the National Bureau of Statistics (NBS) reported on Tuesday.

The CPI rose 3.4 percent in May, passing the government's warning level of three percent, the NBS revealed.

Inflation is still being driven by food price hikes, which are up 8.3 percent from May last year. Grain prices rose 5.9 percent, meat and poultry 26.5 percent, and eggs soaring by a large 37.1 percent.

China's CPI is weighted with foodstuffs accounting for 33 percent thereof, with meat, poultry and related products standing at 20 percent.

In April, the rise hovered at 3 percent, and at 3.3 percent for March. In the first five months of this year, consumer inflation has gone up by 2.9 percent year-on-year.

Construction material prices climbed 4.8 percent, with the cost of home rental jumping by 3.4 percent. Necessities such as water, electricity, and fuel also rose by 2.8 percent.

According to NBS, the rural/urban breakdown showed a slower rise in cities at 3.1 percent compared to 3.9 in the countryside.

"The slight rise in the CPI was expected due to the price rises of grain and pork," said Song Guoqing, professor with Peking University's China Economic Research Center, who expressed his strong warning against raising interest rates to the central bank.

Zhou Xiaochuan, governor of the People's Bank of China, said on June 6 that the bank may have to employ a hybrid package of monetary tools to hold off inflation.  

Liang Hong, chief China economist for Goldman Sachs Asia, added to the gloom, raising China's annual inflation target from 2.6 percent to 3.6, surpassing the three percent cap desired by central authorities.

In its own bid to control inflation, the People's Bank of China raised the one-year deposit rate by 0.27 percentage points to 3.06 percent and the loan interest rate by 0.18 percentage points to 6.57 percent on May 19.

(Xinhua News Agency June 12, 2007)