CPI likely to peak last month: Analysts

08:28, October 13, 2010      

Email | Print | Subscribe | Comments | Forum 

Analysts expected China's consumer price index (CPI) to have reached its 2010 peak in September and inflation pressure to gradually ease in the fourth quarter, while views were divided on whether the government will raise interest rates.

CPI, the major inflation gauge, rose to a 22-month year-on-year high of 3.5 percent in August, which is 0.2 percentage points higher than July's rate, National Bureau of Statistics figures show.

It increased by 0.6 percent in August on a month-on-month basis, 0.2 percentage points higher than in July. September's figures are scheduled for release on Oct 21, along with third-quarter economic data.

Shanghai Securities chief analyst Hu Yuexiao believed the CPI will increase in September to reach 3.9 percent. A Bank of Communications report predicted the figure will be around 3.7 percent, with the increase spurred by constant rises of domestic food prices during the period.

Agricultural food prices rose 8.7 percent between Aug 30 and Sept 26 compared with the same period in 2009. The increase was led by a 35.4 percent surge in vegetable prices, an 11.3 percent jump in fishery product prices and a 10.6 percent hike in egg prices, Ministry of Commerce data showed.

Industrial Securities Chief Economist Dong Xian'an said food prices in the CPI basket might increase 8.3 percent year-on-year, propping up an index increase to about 3.5 percent. Food accounts for about 33 percent of the CPI.

"The fact that the Mid-Autumn Festival was in September this year but fell in October last year also pulls up the figure to some extent," he said.

Most analysts agreed that fourth-quarter inflation pressure will gradually ease and the CPI would start to decline. The main cause will be falling demand and monetary liquidity pressure, a higher basis than the same period in 2009 and a downward trend of international commodity prices.

But as rising pressure created by increasing agricultural product prices seems unlikely to drop in the short and medium terms, the fourth-quarter CPI decline will be very limited. That is because of increasing wages and the government's attempt to raise the prices of some energy products, a Bank of Communications report said.

The Asian Development Bank (ADB) in September trimmed its inflation rate forecast for this year to 3.2 percent from the 3.6 percent prediction in April. It has not changed the prediction of 3.2 percent for 2011 and has said consumer price pressures will remain relatively subdued.

The Industrial Bank's Chief Economist Lu Zhengwei said that if CPI growth exceeds 3.6 percent in September, the government might soon increase interest rates.

"The monetary policy committee of China's central bank made inflation control a top priority on Sept 29, when its third-quarter regular meeting was held, and said the task is still arduous," Lu said. "That indicates the possibility of further tightening."

He said declining concern about an economic slide and a more flexible yuan exchange rate prompted the government's willingness to counter inflation and end long-term negative interest rates.

ADB senior advisor Zhuang Jian said raising interest rates is not the right way to control inflation in the short term. That is because the biggest CPI driver is agricultural product prices, which are primarily affected by such factors as climate and natural disasters rather than credit fluctuations.

"If China raises interest rates but other countries don't, imported inflationary pressures will rise with the inflow of hot money," he said.

Zhuang suggested the central bank consider increasing the deposit rate while keeping the current lending rate in the medium and long terms.

But Lu said the best strategy remains increasing both rates, because a low lending rate will contribute to the house price "fever". It will also exclude private enterprises from receiving financial support because State-owned companies can borrow at low cost.

The central bank raised the reserve requirement for six major banks by 0.5 percent on Monday. Dong, with Industrial Securities, estimated the measure would reclaim about 220 billion yuan and affect 1.1 trillion yuan of money available for lending.

Source:China Daily


  • Do you have anything to say?


Special Coverage
  • Premier Wen Jiabao visits Hungary, Britain, Germany
  • From drought to floods
Major headlines
Editor's Pick
  • Chinese Navy soldiers hold an evening party marking the upcoming 62nd National Day aboard Chinese Navy hospital ship "Peace Ark" in the Pacific on Sept. 28, 2011. The Chinese National Day falls on Oct. 1. (Xinhua/Zha Chunming)
  • Photo taken on Sept. 30, 2011 shows the crowd at the plaza of Beijing Railway Station in Beijing, capital of China. The railway transportation witnessed a travel peak with the approach of the seven-day National Day holidays on Friday. (Xinhua)
  • A man wearing high-heel shoes takes part in the 3rd annual Walk a Mile in Her Shoes, an event when men literally walk in women's shoes to raise awareness about ending violence against women, at Yonge-Dundas Square in Toronto, Canada, Sept. 29, 2011. (Xinhua/Zou Zheng)
  • Photo taken on Sept. 29, 2011 shows a cargo ship in danger on the sea near Zhuhai City, south China's Guangdong Province. Cargo ship Fangzhou 6 of Qingzhou of southwest China's Guangxi Zhuang Autonomous Region lost control after water stormed into its cabin due to Typhoon Nesat on the sea near Zhuhai Thursday, leaving 12 crew members in danger. Rescuers rushed to the ship and saved them by using a helicopter. (Xinhua)
  • Actress Gong Li poses for L'Officiel Magazine. (Xinhua Photo)
  • Demonstrators from the Occupy Wall Street campaign hold placards as they march in the financial district of New York September 29, 2011. After hundreds of protesters were denied access to some areas outside the New York Stock Exchange on September 17, demonstrators set up a rag-tag camp three blocks away. Zuccotti Park is a campground festooned with placards and anti-Wall Street slogans. The group is adding complaints of excessive police force against protesters and police treatment of ethnic minorities and Muslims to its grievances list, which includes bank bailouts, foreclosures and high unemployment. (Xinhua/Reuters Photo)
Hot Forum Discussion