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Inflation control target, how far to go?

08-29-2011 10:10 BJT

By Fang Yang

BEIJING, Aug. 29 (Xinhuanet) -- Since the beginning of 2011, China has taken a series of measures to cool rising prices, such as introducing a prudent monetary policy, boosting supply and containing inrrational demand while establishing a price control mechanism. However, it will be quite difficult to meet the government's annual inflation rate control target, which is around 4 percent for the year.

Zhang Ping, the head of the National Development and Reform Commission (NDRC), China's top economic planner, called for all macro control policies in force to be fully implemented, as "it could be difficult to keep the consumer price index (CPI) growth below the government's target this year."

He made the remarks at a bi-monthly legislative session of the Standing Committee of the National People's Congress (NPC), China's top legislature.

He expected the country's price level to remain high due to the pressures of excessive global liquidity, imported inflation, higher domestic production costs and temporary shortages of some kinds of farm products, as well as the consequences of natural disasters.

He said that the pressures and risks China faces could lift inflationary expectations, and make it hard to meet the price control target.

CPI remains high

In the first seven months, the CPI gained 5.5 percent from a year earlier, well above the government's target ceiling of 4 percent for this year.

In July, CPI even jumped 6.5 percent year-on-year, reaching its highest level in 37 months, placing the government in a tough position with worsening global liquidity in sight.

The Producer Price Index, which is used to calculate inflation at the wholesale level, jumped 7.5 percent year-on-year in July.

The stubbornly high inflation rate has been driven by rising food costs, which jumped by 14.8 percent in July from a year ago.

The price of pork, a staple food in China, soared by nearly 57 percent in July.

Addressing a Forum on China's Macroeconomic Conditions and Macro Policies in Singapore, Zhang Liqun, an economist from the Development Research Center, said he expected the inflation pressure resulting from surging food prices to start easing as supply increases.

Grain and rice output in China has been growing steadily in recent eight years and the production capacity of vegetables has also increased as the government has put in place incentive programs.

"Generally speaking, the food supply situation has been improving, whereas the demand is basically stable," he said.

Tan Kong Yam, director of Asia Competitiveness Institute, the National University of Singapore, said pork prices accounted for as much as 3 percent of the total basket for the CPI in China.

"A surge of 50 to 60 percent in pork price would mean a contribution of 1.7 percentage points to the consumer price index, " he noted.

The CPI in China would be 4.8 percent if the price of pork is excluded, meaning that the CPI has already started to ease, Tan said.

"I think the fall of CPI may be sharper than expected when the pork price falls in six to 12 months," he said.

The pork price began to surge in the second half of 2010, encouraging farmers to increase their stock. The number of pigs in stock has been increasing as of February, he said.

Easing the inflation pressure would be a long and slow process, and experts presume that in August, CPI would be still high.

High inflation is expected to stay for some time to come, most probably between 4 percent and 5.4 percent in 2011 and 2012, a team of economists from the Xiamen University in China and the National University of Singapore said in their latest forecasts on the China's economy released on Aug. 20 in Singapore.

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