Too early to guess price trend

Policymakers have to realize that the root of the current wave of rising prices lies in the country's loose monetary policy of the past two years, which pushed up housing prices first and then extended their influence to other economic fields.

The CPI in China is basically food-oriented, and when rising prices are finally reflected in farm products and food, it means that domestic commodity price as a whole has been leveled up. So far this year, four major categories of consumer goods, including health care products and home appliances, have seen their prices increase by varying degrees.

When the overall commodity price level goes up and finally raises the prices of farm products and food, it does not necessarily mean the prices of farm products and food have already reached the peak and are ready to descend. Instead, the next wave of price rises could be on the way, and the problem would be compounded because of the global food crisis.

Viewed in this light, the prices of farm products and food will stay high in the second half of the year; they will not go down in the short term. Nor will pork prices drop drastically in the short run, given that piglets need nearly a year to grow up.

Moreover, despite the central bank's tight monetary policy in the first half of the year, excess liquidity still exists in the market. Under such circumstances, the soaring housing prices would stay high, too.

It is still too early to say whether the CPI reached its peak in July and will go downward from there. So the CPI may retain its high level in the second half of the year, unless the government eliminates the problem from the root.

The author is a researcher with the Institute of Finance and Banking, affiliated to the Chinese Academy of Social Sciences.

(China Daily 08/06/2011 page5)