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Inflation turning point to come, but monetary tightening should continue: experts

(Xinhua)

14:13, September 13, 2011


Graphic shows China's consumer price index (CPI) from August, 2010 to August 2011, according to the National Bureau of Statistics of China on Sept. 9, 2011. (Xinhua Photo)

BEIJING, Sept. 12 (Xinhuanet) -- In line with market expectation, China's inflation retreated from a 37-month high in August as the government’s cooling measures gradually showed results and the carry-over effects quickly faded.

The consumer price index (CPI), a main gauge of inflation, slowed to 6.2 percent in August, the National Bureau of Statistics (NBS) announced on Friday, down from 6.5 percent in July. The producer price index rose 7.3 percent, slightly lower than a 7.5 percent jump in July.

Though August CPI figure edged down, analysts cautioned that the overall inflation picture allows no optimism as a series of complex factors will decide that China’s inflation pressure still remains high amid global economy’s uncertainties.

Experts believed that it is not time for the government to loosen its relatively tight monetary policy right now since the turning point may not have come yet.

Food prices driving CPI up

The NBS said food prices, which accounted for about 30 percent of the basket of goods used to calculate the inflation rate, rose 13.4 percent in August. Prices of 18 types of vegetables inched up 1.5 percent last week, according to data from the Ministry of Commerce. The growth rate was 4.6 percentage points lower than one week earlier, indicating that food prices are stabilizing.

The price of pork, a staple food for most Chinese, soared by 45.5 percent in August, compared to an increase of nearly 57 percent in July.

Ba Shusong, deputy director-general of the Financial Research Department of the Development Research Center of the State Council, said the fall back of August CPI was in line with the market expectation. “Food prices are the driving force behind the CPI, but the rising momentum moderated.”

Talking about the reasons behind the slightly falling August CPI, Chen Yanbin, professor of China’s Renmin University, said that on the one hand the accumulative results of government’s prudent monetary policy have gradually come out; on the other hand, the rising prices of farm products, especially the pork prices, have stabilized, and fanally, the imported inflation eased.

Echoing Chen’s opinion, Zhang Liqun of the Development Research Center of the State Council, said that the macro-control measures have gradually shown effects and the carry-over factors faded rapidly, which are contributed to driving down the August CPI., adding that “the consumer prices will remain stable.”

"As measures taken by the government to stabilize prices have been showing more results and other factors have weakened somewhat, more favorable factors will come into play to keep prices stable," said Li Dongrong, assistant governor of the People's Bank of China, the country's central bank.

Soaring food prices remain a driving force behind the steadily-rising prices, in addition to imported inflation due to the U.S. quantitative easing policy and domestic monetary expansion, said Yao Jingyuan, former chief economist with the National Bureau of Statistics (NBS).

The underlying reason behind the soaring food prices is the weak foundation of China's farming sector, as more than half of the total population produces an agricultural output taking up less than ten percent of the nation's GDP, Yao told a forum during the 15th China International Fair for Investment and Trade (CIFIT).

He noted rising costs of fertilizers and labor also contributed to the price hike and said this will be a long-term trend.

Despite the pressure, Yao said price increases will ease in the following months, as the government's cooling measures will gradually yield results. The stable output of grain and industrial products provides a foundation for price regulation, he said.

An imbalance remains between the country's pork supply and demand, said Wang Jun, an analyst with the China Center for International Economic Exchanges, adding that autumn and winter are usually the pork consumption peak season, with a rise in pork prices likely to push up the prices of other foods.

To check price rises, the government has increased investment to boost live pig supplies and has released more pork reserves onto the market.

To contain rising food prices, analysts pointed out that China should increase supplies of grain, pork and vegetables to keep farm produce prices basically stable, while reducing circulation costs, and cracking down on the hoarding of goods and speculation to keep prices in check.

In order to control food prices, Wang Guogang from the CASS suggested taking administrative measures to limit speculative activities that drive up food prices. In addition, the government should increase fiscal subsidies for farmers and reduce their taxes. "Monetary policy is not the only tool to tame inflation," he said.

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