Inflationary pressure may ease for the rest of the year

BEIJING - China's inflationary pressure might ease for the rest of the year, as the country's ample grain reserves and slowing economic growth will help keep consumer inflation under control, economists have said.

The country's consumer price index (CPI), a major gauge of inflation, climbed 3.3 percent in July - a 21-month high - from 2.9 percent in June, as floods that hit western northeast China disrupted transportation links and pushed up food costs, according to the National Bureau of Statistics (NBS).

Food prices, which account for one-third of the weighting in the CPI calculation, surged 6.8 percent in July, with vegetable and grain costs leading the hike, up 22.3 percent and 11.8 percent respectively, the NBS said.

July's high CPI figure, in addition to surging prices on the international commodity market, raised concerns that the country's CPI could rise further in the coming months and prompt the authorities to tighten monetary policies and even hike interest rates.

But NBS spokesman Sheng Laiyun insisted that China should be able to keep prices "basically stable" for the year and meet the government's annual inflation target of 3 percent.

"The CPI hike in July was largely due to last year's low base and recent dramatic weather conditions across the country ... generally speaking, there are more factors that will curb price rises than those that will fuel price rises," he said.

At a State Council executive meeting presided over by Premier Wen Jiabao in August, top policymakers pledged to fight unfavorable weather conditions to reap a bumper harvest this autumn.

Growth of crops in autumn grain areas has "so far been sound", which will lay the foundations for a good harvest despite natural disasters, according to the meeting.

A number of Chinese economists said the country's inflation might have reached its peak in July and inflationary pressure will ease in the coming months.

China's ample grain reserves will also help stabilize food prices, said Zhang Liqun, senior research fellow at the Development Research Center of the State Council.

"The grain price is not a major concern this year, as the country has ample staple reserves after reaping bumper harvests for six consecutive years," he told China Daily.

This year's natural disasters will not seriously impact China's harvest, he said.

"The drought at the beginning of the year has only had a limited impact on the country's overall staple food output, as grain output this summer is China's third largest on record, despite the fact that it dropped a little year-on-year," he said.

Earlier reports said China has imported 600,000 tons of rice from Vietnam since the beginning of this year, causing worries that the world's most populous nation has started to stockpile grain against any shortage.

But Zhang said the move might be aimed only at adjusting the reserve portfolio, as 600,000 tons of rice imports is quite limited compared with China's annual grain output of about 500 million tons.

Zhang Xiaojing, an economist at the Chinese Academy of Social Sciences, said the ongoing economic slowdown will also reduce general market demand, which could help ease inflationary pressure.

China's industrial output grew 13.4 percent year-on-year in July, down from 13.7 percent in June. Fixed assets investment rose 24.9 percent in the first seven months of this year, down from 25.5 percent in the first half of the year.

The changes provided fresh signs that the economy is slowing due to the government's tightening measures on the property sector and curbs on lending.

"The ongoing economic deceleration is conducive to economic structural adjustments," Ma Jun, chief China economist at Deutsche Bank, said in a research note.

China Daily

(China Daily 09/13/2010)