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Food prices push up CPI,say analysts

By Guo Yali (China Daily)
Updated: 2007-05-03 08:35
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Food items have contributed heavily to the risingconsumer price index(CPI) in the first quarter of the year, economists said.

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The price rise is primarily attributed to China's and perhaps the global demand for biofuel since late last year, sparking even more demand for farm crops such as corn.

A recent commentary in Chinese language business newspaper 21st Economic Herald said the government should try to stabilize the growth of the biofuel industry and consider increasing agricultural investment.

In the Financial News newspaper, Chen Wu, economist of theAgricultural Bank of China, said the global grain market is likely to push Chinese food prices up further, and China must keep up its strategic grain stores.

China's overall CPI, according to the National Bureau of Statistics (NBS), was 3.3 percent in March, exceeding the alarm line of 3 percent set by the central bank and many Chinese economists.

The index, the main gauge of inflation, is at its highest in 25 months, after it hit 3.9 per cent in February 2005.

CPI rose 2.7 percent for the whole quarter.

Li Xiaochao, the NBS spokesperson, said the overall price picture still seemed stable, but admitted there was some "inflation pressure", as reflected in rising grain and food prices.

From January to March, China's food prices grew 6.2 percent, and in March alone, rose to 7.7 percent in annual terms.

Food prices are a key component in determining China's general price index or the CPI. Their proportional weight is 33.2 percent in the index's composition.

And in the category of food prices, grains account for one-third, making up about 10 percent of the weight of China's total CPI.

In a month-by-month account, also provided by the NBS, China's grain prices (not overall food prices) rose 9.1 percent last Decemberyear-on-year, 6.9 percent in January, 6.8 percent in February and 6.4 percent in March.

According to figures cited by China Securities News, the world's total corn output would be about 600 million tons per year, with the United States contributing roughly 240 million tons and China 120 million tons.

The United States uses about 20 percent of its corn crop for industrial purposes, while China uses 10 percent, mainly for biofuel production.

As approved by the central government, there are only four biofuel producers in the country. But local governments have embarked on their own biofuel projects in "more than a dozen" provinces, the newspaper reported.

(China Daily 05/03/2007 page2)