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Inflation Highest In Six Years
http://www.sina.com.cn 2004/02/17 10:18  Shanghai Daily

  China's consumer prices rose by their fastest rate in more than six years last month as food prices continued to rise. However, inflation is unlikely to surge in the near future, experts said.

  The inflation gauge, which adds the cost of services and utilities to retail prices, rose 3.2 percent last month from a year earlier - the fastest pace since April 1997, the National Bureau of Statistics reported yesterday. In 2003, prices increased 1.2 percent.

  "Consumer prices were mainly boosted by food prices, particularly farm products," said Chen Xinkang, of the International Business School at Shanghai University of Finance and Economy.

  Food costs, which account for about a third of the index, rose 8 percent, the report said, without giving details.

  The Chinese lunar New Year usually sees a large demand for food and other consumer products. That further fueled the supply shortage.

  "Costs will probably come down in the coming months as harvests return to normal," Chen said.

  Li Deshui, National Bureau of Statistics director, said that the growth rate is "normal" and he had no concerns of inflation this year.

  Meanwhile, Qu Hongbin, an HSBC Holdings Plc economist, said the concern is overdone.

  "The surge in the CPI is largely attributed to fluctuations in the prices of food categories. The non-food CPI rose only 0.3 percent year-on-year in December," Qu said.

  "The higher CPI should be viewed as anything but demand-pull inflationary pressure," Qu added.

  He said that even the rise in food prices is mainly attributed to supply-side factors: China's crop output shrank 3 percent in 2003.

  Chen added the government takes price hikes in agricultural products as a positive for the economy.

  "It may benefit farmers who account for two thirds of the nation's population," he said. "It's essential to increase farmers' income. That will directly boost the domestic spending."

  Meanwhile, Chen noted that the central government will intervene in the market when necessary.

  Last month, prices of manufacturing products, from clothes to electronic products, were still falling because of intense competition and oversupply.

  Clothes were 1.6 percent cheaper in January and home-appliance prices fell 1.9 percent, the report showed. The cost of mobile phones and other telecommunications equipment fell 1.3 percent.

  The People's Bank of China forecast in October that consumer prices would grow about 1 percent through the end of 2004 and it intends to keep interest rates steady during that period.

  In addition, the leap in prices may make central bank Governor Zhou Xiaochuan more inclined to tighten monetary policy further.

  Zhou said this week that the central bank should be proactive in preventing inflation from gathering pace this year.

  It is expected that domestic financial institutions will offer lendings of 2.6 trillion yuan this year, compared with 2.99 trillion yuan last year, according to the central bank.

  The growth of M2, which tracks cash in circulation, time and demand deposits, will be managed to be around 17 percent this year, compared with 19.58 percent last year, the central bank said.

  The outstanding value of M2 stood at 22.51 trillion yuan at the end of last month, up 18.1 percent from a year earlier, the PBOC said yesterday. The growth was 1.2 percentage points lower than the same period last year.

  The outstanding value of household savings on the Chinese mainland reached 11.63 trillion yuan at the end of January this year. It was an increase of 18.6 percent year-on-year.




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