Experts: Consumer prices reach peak
By Xu Dashan (China Daily)
Updated: 2004-08-13 01:39

China's consumer prices rose by 5.3 per cent year-on-year in July, the National Bureau of Statistics said Thursday.

The consumer price index (CPI), policy-makers' key inflation gauge, was greater than the June figure of 5.0 per cent. But CPI in July fell 0.2 per cent from June.

Grain prices rose 31.8 per cent in July from a year earlier, while vegetable prices jumped 13.4 per cent, the bureau said.

But vehicle prices dropped 3.5 per cent, and the prices for communications products including mobile telephones fell 15.2 per cent.

The bureau said the CPI rose year-on-year by 4.9 per cent in urban areas but by 5.9 per cent in rural areas.

Economist Zhu Jianfang at China Securities said CPI had reached its peak.

"The consumer prices should begin to drop from August," he said.

The higher CPI was partly due to a supply bottleneck in some sectors, according to an earlier report from the statistics bureau.

Fast fixed asset investment growth since the second half of last year resulted in price rises for products such as steel, non-ferrous metals, coal, electricity and oil, the report said.

A fall in the grain production, which declined 5.8 per cent last year, also resulted in a rapid price rise since last October.

The report said the outbreak of bird flu in the first quarter led to price rises for meat, chicken and eggs.

Price fluctuations in the international market and a lower price base last year due to the SARS (severe acute respiratory syndrome) outbreak also contributed to the higher CPI, it said.

Qi Jingmei, an economist at the State Information Centre, said the price situation would ease in the next few months.

"The impact of food prices on CPI will reduce," she said.

The central government's macroeconomic control measures would also have an impact on higher CPI.

China took a raft of measures since the second half of last year to try to cool down the economy. The measures include raising bank reserve requirements three times and curbing unwanted fixed asset investment projects.

The macroeconomic control measures have achieved initial results, said Zhang Xueying, another economist from the information centre.

Price rises in some sectors, such as steel and non-ferrous metals, which saw an overheating investment, have been controlled to some extent.

The growth in industrial output and money supply also slowed down.

The country's industrial output rose year-on-year by 15.5 per cent in July. The growth rate was 0.7 percentage points lower than the previous month.

Broad money supply -- M2 -- rose a year-on-year 15.3 per cent in July, according to the central People's Bank of China. The growth rate was 5.4 percentage points lower than a year earlier, and 0.9 percentage points down from the previous month.

"The government should not take further measures including a rate hike to cool the economy," Zhang said.

He added that the central government wants to bring economic growth down from the current levels where many resources such as oil have been constrained, but the growth needs to be above 7 per cent to generate enough jobs.

Statistics bureau spokesman Zheng Jingping said the overall performance of the country's economy was good.

The national economy remained stable and enjoyed fast growth, while economic efficiency improved continuously, he said.

Uncertainties and unhealthy factors existing in economic performance have also been placedunder initial control, Zheng said.

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