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How to interpret China's economy in first half of 2007? (3)
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17:26, July 23, 2007

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Commodity prices up and down

In June, the CPI (consumer price index) rose 4.4%, mainly driven by food prices hike. In the first half of the year, the CPI increased by 3.2%. Excluding food and energy items, the core price index rose only 0.9%.

Commodity price is an important indicator for observing the economic performance. Generally speaking, if high growth is accompanied by serious inflation, then the economy is in the overheated situation for sure.

The CPI rose 3.2% during the first six months, and 4.4% in June. Mainly driven by food prices hike, the CPI growth was showing significant structural characteristics. Of the 3.2% increase, 2.5 percentage points come from food prices hike. In other words, if excluding food items, the CPI of other items rose only 0.7%. To be specific, grain prices rose 6.4%. Meat or poultry products rose 20.7%. Egg prices rose 27.9%. Aquatic products prices rose 3.7%. Prices of fresh vegetables fell 2.9% and, fruit prices, down 2.9%.

Recently, price hike of grain, meat or poultry products and eggs has drawn wide attention. There are several points to mention: First, the rise of grain prices are subject to the influence of a variety of factors such as prices in the international grain market and increased demand for food; Second, price hikes of pork was mainly because of the decline in production of live pigs last year and insufficient supply of live pigs this year resulted from the blue ear disease.

Excluding food and energy items, the core price index rose only 0.9% between January and June. Price changes showed ups and downs. Despite the surging food prices, industrial producer prices remained basically stable, only up 2.8%. In June, the general price level rose 2.5%. General buying prices of raw materials, fuel, and power products dropped relatively, rose only 3.8% from January to June, and 3.4% in June. During the news briefing on July 19, State Statistical Bureau spokesman Li Xiaochao also revealed that food prices rose 1.9% in the first half of last year, of which, grain prices rose 1.3%; poultry products decreased 7.7%; egg prices fell 10.9%. The lower base price level of last year is also a factor that made the growth rate of this year relatively high.

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