Government to keep CPI in check

By Wang Xu (China Daily)
Updated: 2007-12-06 13:43

China's consumer prices face greater pressure, but a prudent fiscal policy and tight monetary measures would help head off any serious inflation, the nation's top economic planner said yesterday.

Related readings:

 Economy to grow 11.6%, CPI seen at 4.5%
 China's CPI forecast at 4.5-4.6% for whole year
 Economist: Core CPI is still safe
 CPI reaches 6.5%, rate hike likely

The Central Economic Work Conference said the country will monitor price movements and prevent them from spiraling out of control.

"Major triggers for inflation will still exist in 2007, including domestic food price hikes and rising commodities prices in overseas markets," the National Development and Reform Commission (NDRC) said in a statement.

China will encourage production of life necessities such as grain, edible oil and meat to stabilize the prices and curb inflation, the economic conference heard.

Food prices, which gained 11.3 percent in the first 10 months, is said to be the major cause of the country's "structural inflation". According to NDRC, food price rises accounted for 84 percent of the nation's consumer price gains in the first 10 months.

China's consumer price index (CPI), the barometer for inflation, gained 6.5 percent year-on-year in October, matching the 10-year record in August.

The index is expected to grow 4.5 percent this year, according to the Chinese Academy of Social Sciences, much higher than the 3 percent target set by the central bank early this year. The government think tank said the top priority for China's macroeconomic controllers next year is to ease inflationary pressure and stabilize price levels.

International factors such as soaring oil and corn prices on the world market would also be felt in China next year, NDRC said.

High oil prices and a weakening US dollar have resulted in inflation globally, causing the CPI to rise 10.8 percent in Russia, 6.7 percent in India and 3.5 percent in the US, according to NDRC.

The top economic planner also said the government's decision to adjust the pricing mechanism for energy products would also add to inflation pressure.

China has drafted its first energy law, trying to introduce a market-led pricing mechanism for its energy sector.

The new mechanism is expected to bring prices of domestic energy products largely in line with that on the overseas market, so as to price out those low-efficiency energy consumers.

"The central government has decided to take prudent fiscal and tight monetary policies to rein in investment and curb inflation," NDRC said, adding these moves might lead consumer prices to fall next year.

Yu Yongding, former member of the monetary policy committee of the central bank, said earlier that the CPI gains had sent a clear signal for tight monetary policies, as a 4 percent CPI growth was the upper limit for the economy to afford, according to the Xinhua News Agency.

(For more biz stories, please visit Industry Updates)