Reuters quoted the National Development and Reform Commission said China annual inflation in June will be higher than May's 34-month high of 5.5% before moderating in the second half.

The top economic planner said government tightening measures to control inflation were gradually taking effect and consumer prices would remain under control this year "Consumer prices may stay at a relatively high level in coming months but the overall situation remains controllable."

Most analysts expect inflation to peak near 6% in June or July and to start to ease in the second half because of policy tightening measures and a relatively higher base of comparison. The central bank keen to put a lid on inflation has unveiled a series of tightening measures in recent months including repeated increases in bank required reserves and interest rates.

The government has set an annual inflation ceiling at 4% this year, but with prices rising stubbornly, many economists believe the goal will be tough to achieve and there is little room for policy relaxation.

It added that "With the carry over effect tapering off in the second half and new price rise factors also being curbed, annual inflation will moderate from high levels in the second half."

The NDRC also played down the impact of recent flooding and droughts on agricultural production saying the natural disaster s were unlikely to push up grain prices sharply because of an expected ample summer harvest and healthy state grain reserves.

The statement said "Our country suffers natural disaster every year and as usual the flooding and drought this year is limited to some regions of the country. It also said pork price rises were still within a reasonable range and sharp increases were unlikely for the rest of the year as supply was expected to grow in coming quarters.”

The NDRC attributed the recent pork price surge to a relatively low base of comparison a year earlier and said prices were not expected to revisit high levels seen in 2007.

(Sourced from Reuters)