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Experts: Runaway inflation unlikely despite October rise
( 2003-11-25 09:49) (China Daily)

Economic researchers expect only a slight inflationary pressure in the last two months of this year as well as next year although China's consumer price index (CPI) jumped to a six-year high in October.

Following an increase of 1.1 per cent in September, the CPI, a key gauge of inflation, posted a year-on-year rise of 1.8 per cent last month, the highest since 1995.

The upward spiral suggested that the Chinese economy will finally shake off a nearly two-year-old price slump this year.

The pick-up in the index, however, cannot be taken as evidence of the emergence of inflationary pressure, said Professor Song Guoqing with the China Centre for Economic Research at Peking University.

He predicted that the monthly CPI increase for November and December would not exceed 2 per cent while the average year-on-year CPI gain for the whole year would be around 1 per cent.

"Prices will see a moderate gain in 2004, with the CPI expected to rise between 1 to 2 per cent for the full year," the professor said.

"There will be no possibility of high inflation pressure."

A recent survey by the Department of Economic Forecast at the State Information Centre also suggested most Chinese economic experts forecast a CPI gain of 1 to 3 per cent for next year.

As many as 64.1 per cent of the experts believe the CPI will be higher than this year, with the highest prediction ranging between 2 to 3 per cent, according to the poll conducted among scores of prestigious economists.

Meanwhile, 33.3 per cent estimate the CPI jump in 2004 will maintain the same level as this year - between zero and 1 per cent; and 2.56 per cent think next year's CPI increase may be below that of 2003.

Wang Tongsan, director of the Institute of Quantitative and Technology Economy at the Chinese Academy of Social Sciences, said the CPI increase will be kept at a relatively low level due to some existing factors.

The researcher said the recent rise was mainly pushed up by price surges for farming goods since October but that does not mean runaway inflation will be triggered.

"No strong elements exist in the market to support a further soaring in the CPI because most non-farming consumption goods are suffering from an oversupply," Wang said.

He added that the CPI will not be pushed up too high even if grain prices continue a rapid increase.

It is estimated that each one-percentage-point rise in grain prices contributes to a mere 0.1 percentage-point growth in CPI.

Professor Song Guoqing went as far to say that the country's recent efforts to tighten bank lending will also help ease pressure on CPI increase.

A series of measures by China's central bank to check too rapid a rise in money supply and credit have initially paid off as loan growth slowed down for the first time in October.

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