Inflationary pressure picks up in May

By Zhang Yu (China Daily)
Updated: 2007-06-11 09:06

Economists have raised their projections for last month's consumer price index (CPI) to more than 3 percent, reflecting rapid growth in food prices, led by pork and eggs.

Song Guoqing, a professor at Peking University, has predicted that the CPI would be 3.4 percent for the whole year and as much as 3.7 percent for May, exceeding the central bank's annual target of 3 percent.

Consumer prices rose 3 percent in April after climbing 3.3 percent in the previous month. The drop was deemed "only a temporary phenomenon" by Xing Weiwei, a macro-economic analyst with China Jianyin Investment Securities.

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Zuo Xiaolei, chief economist of China Galaxy Securities Co Ltd, sounded a similar note.

"We will see the CPI surpass 3 percent in May, and interest rates will be raised again," she told China Daily.

Two days before she made these comments, central bank chief Zhou Xiaochun said the bank would be "paying close attention to the recent rises in pork and egg prices, which weigh heavily on China's inflation", before making any changes to interest rates.

Pork prices climbed 43 percent in the first three weeks of May compared with a year earlier, and egg prices surged 30 percent in April, according to government figures.

Food has long been a driving force behind China's CPI since it makes up a third of both consumer spending and the CPI basket, but economists worry that more and more food is being allocated to the production of biofuels.

Corn-based biofuels are attracting a lot of attention since China will stop exporting corn and actually start importing as much as 350,000 tons of it a year during the 11th Five-Year Plan (2006-10).

However, the soaring food prices may not necessarily mean that China's economy is already inflationary.

"We depend more on core CPI than on CPI per se to judge whether an economy is inflationary," said Li Wenpu, a professor at Xiamen University.

Food prices tend to fluctuate heavily when there are shortages of supply or seasonal changes, so they are usually excluded from the core CPI together with energy prices because these two are not thought to reflect the true movements of prices, Li said.

Li Xiaochao, a spokesman from the National Statistics Bureau, said last month that core CPI rose by only 0.9 percent in the first quarter, while the CPI surged 2.7 percent.

"Actually, the CPI has grown at a relatively low level in the past four years, particularly when we consider the robust economic growth rate," Li told China Daily.

Though China's economy has grown at a brisk pace in the past four years, inflation has been kept in check.

Starting in 2003, China has experienced double-digit economic growth while the CPI has mostly stayed below 2 percent, with the exception of 2004, when the CPI was 3.9 percent.

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