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Economists: Inflation would ease despite quake
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Economists from major investment banks said Saturday China's high inflationary pressure would gradually ease this year though the worst earthquake in decades ravaged southwestern regions.

"The quake didn't change our prediction on China's consumer price index (CPI), whose year-on-year rise we think would gradually fall below 6 percent in the second half," said JPMorgan chief China economist Frank FX Gong at a forum here.

"Without the quake, May's CPI would be less than 8 percent up from the same period last year," said Gong. "Now the growth is expected to be around 8 percent but other months won't be affected."

China's CPI, the main inflation indicator, rose 8.5 percent year-on-year in April, compared with 8.3 percent in March and a nearly 12-year-high of 8.7 percent in February.

Food price rises, the main driving force for the high CPI level, would get milder in the second half, said UBS senior China economist Wang Tao.

Farm produce prices had already slumped 2.9 percent month on month in the first few weeks of May, estimated with figures from the Ministry of Commerce and the Ministry of Agriculture, according to chief economist Ha Jiming of China International Capital Corporation Limited.

He predicted the CPI rise in May was likely to be lower than in April and stood between 6 percent to 7 percent for the whole year, taking non-food prices into account.

Food prices accounted for roughly a third of CPI's calculation in China.

Due to large increases seen in food supply, such as in pork production, the inflation gauge would come down to around 4 percent by the fourth quarter and the overall level for 2009 would stay fairly low, Robert Subbaraman, chief economist Asia Ex-Japan of Lehman Brothers told Xinhua.

The earthquake was expected to have an impact on inflation, as the jolted Sichuan Province and Chongqing Municipality in combination was a quite large area to produce food, said Subbaraman, who added the influence would not be as obvious as that of the snow storm months ago, though.

The severe winter in January and February had paralyzed transportation across south China, cut power grids and disrupted goods delivery, making prices surge to record high.

Ha noted the quake was negative for inflation in the short term but the effect was minor, as the gross domestic product (GDP) share of the quake-hit regions was only around 0.4 percent in the national total.

China's CPI growth would retreat to 5.5 percent year on year in2008 and 2.8 percent in 2009, according to Lehman Brothers' forecast.

When inflationary pressure abates, the Chinese government should launch reforms in time to remove price controls on products like refined oil, said Gong.

China has imposed price ceilings on refined oil sold in the country despite soaring international crude prices to curb inflation and subsidized the profit-losing refiners.

Gong argued letting the market decide the prices of domestic refined oil would serve to restrain the strong demand, which has exactly contributed to higher world crude prices.

Meanwhile, global food and fuel price rises, which were considered to be passed on to domestic industrial products, would continue to pose risks of forcing up and spreading inflation in future, said Wang.

The producer price index (PPI), which measures the value of finished products when they leave the factory, rose 8.1 percent in April year-on- year, setting three-year highs for a fourth consecutive month.

The 8.0-magnitude earthquake that struck southwest China's Sichuan Province on May 12 had killed 60,560 as of Saturday noon, official statistics show.

By 7:00 p.m. Thursday, it had left more than 5.46 million rooms collapsed and more than 5.93 million others badly damaged in Sichuan, with roads, railways, bridges, water conservation facilities and factories devastated.

Fixed asset investment could be boosted by post-disaster reconstruction and support a stable economic growth in the second half of the year, said Gong.

China will see its annual GDP growth slow down to 9.8 percent this year and 8 percent in 2009, compared with 11.9 percent last year, according to the forecast by Lehman Brothers.

(Xinhua News Agency May 25, 2008)

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