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High Food Costs Cause Consumer Prices to Rise

Posted on: Wednesday, 22 February 2006, 18:00 CST

By Su Bei

Higher cost of food caused China's consumer prices to rise 1.9 per cent year-on-year in January, figures from the National Bureau of Statistics indicate.

The consumer price index (CPI), a key inflation measurement, rose 2 per cent in urban areas and 1.7 per cent in rural areas, the bureau said yesterday.

Food prices, which account for one-third of the index, rose 3.6 per cent from a year earlier, the highest gain since March 2005.

Vegetable prices jumped 34.9 per cent and grain prices rose for the first time in nine months, increasing 1 per cent from a year earlier.

"The CPI situation is within my expectations," said Qi Jingmei, a senior economist with the State Information Centre. The CPI is expected to continue climbing moderately for the rest of this year.

"The country will not face deflation, nor inflation," she said, adding if either occurred, it would hurt the interests of the average person and the national economy as a whole.

Zhuang Jian, a senior economist with the Asian Development Bank's Resident Mission in China, agreed this year's CPI will be moderate, but added it will be higher than that of last year.

"This is mainly because of the government's pending reform on prices of resource-related prices," he said.

The lower prices for products such as oil, electricity and water are not helpful for saving resources.

The administrative control over prices of those products would also distort price mechanisms, he said.

As a result, the National Development and Reform Commission has repeatedly said the government would gradually raise the prices of those products.

Zhang Yongjun, another senior economist with the State Information Centre, said the price adjustment would more or less benefit industrial products accounting for about 50 per cent of the CPI, which has suffered price drops for many years.

Fierce market competition and product oversupply is keeping many producers, especially those who make mobile phones and cars, from raising their prices, he said.

"They prefer losing profits rather than the market shares."

Xie Fuzhan, deputy director of the State Council Development Research Centre, said the country's CPI will not exceed 3 per cent this year.

It would be easy to keep the CPI below 3 per cent by regulating the pace at which government-set utility prices rose, he said.

"If the reforms on prices of oil and public services are quicker, then the price increase will be a bit faster. But it will be controllable," Xie said.

Xie's forecast was in line with the People's Bank of China's prediction. The central bank said on Tuesday that the CPI will pick up this year, averaging about 3 per cent against 1.8 per cent in 2005, and a seven-year high of 5.3 per cent in July 2004.

But Yuan Gangming, a professor at the Tsinghua University, said China will relapse into deflation sometime this year, with a single month's CPI dropping to less than zero per cent.

"There is no possibility of an inflation," he said.

Source: China Daily; North American ed.

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