China's CPI increase in 2012 hits three-year low

Key Words: CPI; inflation; China economy; NBS

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China's Consumer Price Index (CPI) rose 2.5 percent in December 2012 from the previous year and increased 0.8 percent from November. The CPI rose 2.6 percent from the previous year, far below the Chinese government's target of keeping it under 4 percent. The CPI increase of the whole year hit a three-year low.

Experts believe that the inflation rate has bottomed out, and the recent rebound in inflation is normal. The seasonal increase in vegetable and meat prices has resulted in the inflation rebound. Domestic consumer prices are likely to rise steadily within a controllable range this year.

CPI bottoms out

Although the annual inflation rate last year was well below 4 percent, most people still felt strongly about rising prices. According to the National Bureau of Statistics (NBS), the annual inflation rate reached 2.6 percent last year, and was within an acceptable range.

However, the rebound in food prices at the end of last year has placed consumers under heavy pressure. Yu Qiumei, a senior statistician at the NBS, said that the CPI witnessed a year-over-year growth rate of 2.5 percent and month-over-month growth rate of 0.8 percent last December, up 0.5 percentage point and 0.7 percentage point, respectively, from that of last November. This showed an accelerating inflation trend.

Lian Ping, chief economist at the Bank of Communications, said that the CPI reached its bottom in the fourth quarter of 2012 and entered a new upward cycle at the beginning of 2013.

Financial commentator Ye Tan also said that China's inflation rate will not fall below 1 percent anymore. The CPI trend last year was V-shaped, reflecting great volatility facing the Chinese economy. The country should be carefully prepared for future price rises.

Vegetable and meat prices rising sharply

In addition to the rebound in the overall CPI, the public have felt strong about rising prices mainly due to the surge in the prices of agricultural products. Yu said that the increase in the inflation rate last December was mainly caused by the surge in vegetable and meat prices. Data showed that food prices rose 4.2 percent in December from the previous year, and increased 2.4 percent from November. Meanwhile, non-food prices rose 1.7 percent from the previous year, and were flat from November.

The cold weather in last December affected vegetable production, transportation, and sales. Yu said that vegetable prices rose 17.5 percent last December from the previous month, and the surge in vegetable prices contributed nearly 60 percent to the month-over-month CPI growth of 0.8 percent. According to the Ministry of Agriculture, vegetable prices have risen for 10 straight weeks, surging 55 percent during the period.

Yu said that the prices of certain fresh food may rise in the run-up to the Chinese Lunar New Year. After the Spring Festival, the weather will gradually get warmer, and the prices of fresh food may face weaker upward pressure.

Consumer prices to rise steadily this year

Lian predicted that China's consumer prices will rise moderately this year, and overall inflationary pressures will be gentle. The CPI will rise 3 percent to 3.5 percent from last year, and grow slowly but steadily.

Lian listed some factors driving the new consumer price upward cycle.

First, the Chinese economy is stabilizing and picking up due to the recovery of domestic and external demand, which will lead to a rebound in inflation.

Second, the prudent monetary policy is conducive to moderate rises in consumer prices throughout the year.

Third, pork prices will return to an upward track due to limited market supply and increasing costs of raising pigs. The "pork cycle" of the CPI may appear again, and grain prices will remain stable with slight rises.

Fourth, the reform of the resource price formation mechanism may temporarily push up consumer prices.

Fifth, the expansion of domestic demand and new type of urbanization will place labor and land costs as well as housing prices under great upward pressure.

Experts noted that the new type of urbanization should not become a new round of massive demolition and construction, and the country must be vigilant against asset price risks brought about by overheated investment.

Read the Chinese version: CPI不高为何家庭主妇还喊涨（热点聚焦)
Source: People's Daily Overseas Edition; Author: Wan Qian

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