Taking the air out? [By Jiao Haiyang/China.org.cn]

With the consumer price index (CPI) hitting its highest level in nearly three years in May, policymakers need to put the brake on inflation again.

The latest decision by the People's Bank of China to raise the reserve ratio rate to a new high is surely only the start of efforts to absorb excess liquidity. The third hike in interest rates this year should come in weeks, if not days, to prevent inflation from rocketing through the roof.

China's consumer inflation rose 5.5 percent year-on-year last month, up from 5.3 percent in April and far above the government's target of 4 percent this year.

It is alarming that the increase was the fastest since July 2008 when inflation was later choked by the worst global crisis in many decades.

Such accelerating inflation has not only dispelled early optimism that the country's inflation would peak around June or July, it has also raised questions about the adequacy of the policy responses to fight inflation, which is a top priority for the Chinese government.

With food prices rising 11.7 percent last month amid increasing power shortages and severe droughts in some regions, China's fight against inflation appears to be more complex than expected.

That pork prices rose in May more than 40 percent from a year earlier means a new source of inflation has come into being and it will not be stopped any time soon because of the time it takes to raise more pigs. Worse, the root causes of soaring consumer prices remain largely unaddressed.

On one hand, the country's withdrawal from loose monetary policies has not been quick enough, although admittedly, the central bank has raised interest rates twice so far this year in a bid to attack inflation at its source. At the beginning of this year when the CPI was hovering about 4 percent, it was reasonable to hope that four such hikes, one in each quarter, might be sufficient to roughly render real deposit interest rates positive and tame inflationary expectations.

Yet, when the rise of consumer prices outpaced predictions, policymakers should have stepped up monetary tightening accordingly in order to mop up excess liquidity immediately.

On the other hand, the country has not done enough to stop importing inflation as super loose monetary policies in developed countries are fuelling a surge in global commodity costs.

Though robust demand from developing economies more or less contributed to the rise of commodity prices after the 2008 global financial crisis, the weakness of the US dollar should be blamed for most of the imported inflation developing countries face.

Given that the US dollar is unlikely to strengthen significantly before the United States can manage to fix both its unemployment and national debt problems, Chinese policymakers should count on a more flexible foreign exchange regime to fight the inflationary impact of surging global commodity prices.

If the ongoing cycle of inflation is much more broad-based and persistent than expected, it is time to slam on additional brakes.