CPI could top 5%: pundit

08:14, September 27, 2010      

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By Li Qiaoyi

The consumer price index (CPI) is likely to peak out in October at 5 percent, while 2010 annual CPI will come in at below 4 percent, an official with a government think tank said at a forum in Beijing over the weekend.

Wang Jian, vice president of the China Society of Macroeconomics, under the National Development and Reform Commission, asserted that keeping inflation in check will be a tough task given the government's goal of maintaining high economic growth while at the same time keeping inflation low.

His remarks directly challenge the 3 percent CPI goal set by Premier Wen Jiabao as part of the annual government work report released in March.

Currently inflation is being pushed up mainly by higher food prices - which are expected to continue to rise in the coming months - as autumn grain production volume may fall short. That in turn could lead to price hikes for grains, an important force behind the upward CPI trend, Wang said.

The CPI for food increase 7.5 percent year-on-year in August due to poor weather and grain price increases, resulting in an overall CPI reading of 3.5 percent, nearing a two-year high, according to figures from the National Bureau of Statistics.

Not all economists agreed with Wang.

The CPI is estimated to top out in August and drop back to below 3 percent by year's end, said Lu Zhengwei, a Shanghai-based senior economist with the Industrial Bank Co. He added that the government is capable of dealing with any quarterly grain pro-duction fluctuations.

Wang believes even if the CPI rises to 5 or 6 percent, it won't trigger interest rate hikes, since keeping economic growth on a solid footing remains a priority on the government's agenda.

Lu also said rate hikes are unlikely this year, given that the economy has already showed signs of growth moderation.

Real interest rates have been negative for seven months, given the CPI reading continues to be in excess of the 2.25 percent benchmark one-year deposit rate set by the People's Bank of China.

The latest interest rate hike took place in December 2007, and thereafter the People's Bank or central bank cut benchmark interest rates five times during the last three months of 2008, after the nation's economy was hit by the financial crisis.

Though most market watchers see little potential for rate hikes, there are voices that support rate hikes at the appropriate time.

Both USSecurities and Morgan Stanley have recently said the central bank may hike rates late this year or early next year.

Source: Global Times


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