Highlights:

Since the first half of this year, China' s inflationary threat has come to the fore. This year has seen the CPI growing steadily and exceeding the government' s 3 % threshold in May. Contrary to economic forecasts that the CPI peaked in June and July, inflationary pressures have been mounting since the latter half of this year. The CPI grew 3.3% year-on-year in July and 3.5% in August, the highest in 22 months. In particular, food prices jumped 7.5%. Climate anomalies and the unleashing of massive loans in 2009 are the culprits for the CPI growth. Interest rate hikes are the best solution to mounting inflationary pressure, but the hikes can put a damper on the overall economy. Thus, the Central Bank' s interest rate hike is unlikely in the foreseeable future.