3.5 percent inflation target is rational

[Highlights: Premier Wen's government work report]

Edited and translated by Liang Jun, People's Daily Online

It is rational for China to set an inflation target of 3.5 percent, according to Zhang Liqun, an analyst with the Development Research Center of the State Council. The figure is slightly higher than the 2.6 percent inflation rate in 2012 and it considers both the inflation pressure and people's capacity to tolerate inflation.

Inflation in January this year increased by one percent month-on-month, setting a record high in 2012. Some people worry that food prices will rise again and rebound sharply this year.

Price of vegetable and meat are the main factors to push the rising inflation in 2013, contributing to 60 percent, according to Zhang. But generally, food prices will not sharply rebound this year.

Zhang thinks China should be wary of three inflation pressures: first, supply and demand of agricultural products are and will be in a tight balance, and affected by a natural disaster, there are greater possibilities of price increase; second, China's money supply is bigger, which will probably promote the investment in real estate and local investment, but also push the property prices and food prices; third, major developed countries implement increasingly loose monetary policies and lead to global liquidity overflow, which most likely will boost international commodity prices and bring imported inflation pressure to China.

However, Zhang believes that there are some favorable factors.

The government work report shows that broad money supply (M2) this year will rose by 13 percent, releasing signal of price control; it is the lowest target in the last three years. In addition, rice bag (grain supply) program and vegetable basket (non-staple food supply) program lay a solid foundation to stabilize prices of agricultural products.

Imported inflation pressure and tendency of rising costs are difficult to control in a short term. The regulation should focus on stabilizing prices of housing and agricultural products. If this goes well, we have confidence to keep the overall price level basically stable, according to Zhang.

Read the Chinese version: 数字解读政府工作报告
Source: People's Daily; Author: Wang Ke