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Price Surge Won't Cause Inflation: Experts

Government economists have dismissed concerns that the recent price surge in farming products will herald general runaway inflation in the Chinese economy.

Yao Jingyuan, chief economist with the National Bureau of Statistics (NBS), said "there exits no strong elements in the market to support a rapid rise in the consumer price index (CPI)", a key gauge of inflation.

"That's because non-farming consumption goods are generally suffering from an oversupply and the trend will continue for a considerable period," he said.

Data from the All-China Commercial Information Centre suggested that 127, or 21.2 percent, of 600 main commodities will keep a basic balance between supply and demand in the second half of this year.

Meanwhile, supply is expected to exceed demand for 483, or 78.8 percent, of these commodities.

What's worse, soaring urban unemployment, which means decreasing incomes for millions of city dwellers, is set to worsen the oversupply and lessen the pressure for further price increases.

"All these factors suggest that any foundation for a general inflation will fail to materialize," Yao said.

His comments came in response to growing concerns that a recent hike in prices for farming goods forebodes a general price surge.

During the past month, prices for main cereals such as wheat, rice and maize recorded sharp jumps in major grain-producing provinces for the first time since 1997.

Between October 16 and 19, wheat prices saw an average increase of 40 to 80 yuan (US$4.8 to US$9.6) per ton while maize prices went up by 80 to 120 yuan (US$9.6 to US$14.5) per ton in north China, one of the country's main crop-producers.

Driven up by the grain price increase, the prices for flour, edible oil, meat, eggs and fodder have all seen a rise in key grain-consuming areas, according to market data.

Ma Qingchao, an agricultural expert, said the current grain price surge can be seen as the initial step towards a general trend of rising prices.

He added that the price fluctuation for grains is closely related to inflation; recalling that grain prices did jump by a big margin in 1994/1995 when the Chinese economy experienced runaway inflation.

But Li Yongqiang, an economic analyst with the Rural Survey Organization of the NBS, stressed that recent grain price gains are "moderate and not out of our expectation".

"Our statistics have demonstrated that prices of farming products have been edging up since the start of this year," he said.

Li predicted that current price hikes, which are based on market factors and prompted by an expected tight supply in the grain market, may not last long.

The reason is that rising prices will encourage more farmers to plant crops, which, in turn, will help increase supply and ease price pressures, he explained.

The economic analyst went as far to emphasize that the CPI will not be pushed up too high even if grain prices maintain a rapid increase.

It is estimated that each one-percentage-point rise in grain prices contributes to a mere 0.1 percentage-point growth in the CPI.

Earlier, the NBS announced a year-on-year CPI increase of 1.1 percent in September, the highest since January 2001. It was up 1.2 percentage points over the previous months.

The index recorded an average gain of 0.7 percent year on year in the first nine months, according to NBS figures.

Even given the recent price surge in farming goods, the monthly CPI increase for the fourth quarter is not expected to top 2 percent, economic researchers have forecast.

They have predicted an average year-on-year CPI gain of about 1 percent for the full year, stoking hopes that the Chinese economy will finally shake off a nearly two-year-old price slump this year.

(China Daily November 5, 2003)

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