Moderate first-quarter rise in inflation expected

16:26, March 29, 2010      

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Whether or not inflation will appear this year has become a hot issue in China. A 2.7 percent increase in the Consumer Price Index (CPI) in February sparked fears on inflation. At the same time, the serious drought in China's southwestern regions also adds to the anxiety. However, the National Development and Reform Commission (NDRC) predicted that CPI will only rise moderately by 2 to 2.5 percent in the first quarter of this year.

<b>"A moderate increase"</b>

In order to disperse the inflation expectations, the NDRC and the National Bureau of Statistics (NBS) have made several explanations in the past. Not long ago, the NDRC again explained that the CPI increase in February was mainly a result of some seasonal and temporary factors such as the Spring Festival, rain and snow. They posed as barriers to the transportation of fresh vegetables, fruits and aquatic products, affected supply and caused continual price increases.

The NDRC stated that CPI rose by 2.7 percent in February compared with the same time period last year. Tail-raising factors and new factors drove up CPI by 0.9 percent and 1.8 percent, respectively. Of which, the rise in the prices of fruits, vegetables and aquatic products drove up CPI by 1.2 percent year-on-year, accounting for 66 percent of the new factors. Given the abnormal weather, CPI only rose by 1.2 percent year-on-year in February, lower than the average figure of 1.25 percent over the past four years. Therefore, CPI is still rising at a normal pace.

Let us turn our eyes to the future trend. As it gets warmer and warmer, prices of agricultural products such as fruits, vegetables and fish begin to go down. In addition, prices of pork and others will also continue to drop due to multiple factors such as sufficient supply and weak demand. Under this condition, the NDRC predicts that CPI will increase moderately by 2 to 2.5 percent in the first quarter of this year.

As for this year's CPI trend, experts said that some factors such as imported inflation and the increase in natural resource prices will cause CPI to rise while some other factors such excessive production capacity, grain harvest in six consecutive years and inflation control by the Chinese government will prevent CPI from going up.

After analyzing the inflation taking place in China over the past 30 years, Yao Jingyuan, chief economic manager of the NBS, stated that major inflation is characterized by three factors. They are economic overheating, agriculture (in particular grain)-related problems and excessive money supply and bank loans. We will inevitably witness inflation if these three factors appear at the same time.

Currently, Premier Wen Jiabao clearly pointed out in this year's Report on Government Work that we must handle these three issues well. Namely we must maintain stable and relatively rapid economic growth, speeding up adjustment of the industrial structure and managing the inflation expectations. "I believe that the macro-control will enable us to reach our goal despite the fact that 3 percent is a tough goal."

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