National Bureau of Statistics spokesman, Yao Jingyuan, says that though China's Consumer Price Index (CPI) may have been high in January, supply and demand are currently well balanced so prices will remain stable keeping the index figure little changed at between 2-3 percent for the year as a whole.

Inflationary fears groundless

Following 20 consecutive months of negative growth the CPI went up 1 percent last October signaling an end to China's deflation and holding out the prospect of a return to stability in consumer prices.

However since then, grain and oil prices have soared helping to fuel 3 percent growth in CPI. What's more the prices of some manufacturing materials like steel have seen double-digit growth rates.

On the issue of the now-growing concerns about inflation, Yao is of the view that commodity inventories are not low enough to spark a round of rapid price increases. Market forces including those operating in international markets are playing an increasing role in allocating resources. China is set to export some US$800 billion this year, representing 60 percent of Gross Domestic Product (GDP). Since the global economy is in deflation, China's CPI won't be pushed up too much and inflationary fears are groundless.

Consumer prices to see only modest rises

Yao says that ultimately price is determined by demand. In 2003 particularly high levels of consumption went hand in hand with levels of economic growth, so demand pulled up the prices of manufacturing materials. This year, the plan is to reduce consumption while increasing production so lessening the excess of demand for the likes of steel, cement and energy.

GDP is the number one criterion used to make an overall assessment of the level of the economy. Prices serve as economic indicators and can be judged by reference to three main indices. These are the consumer price index, the industrial price index and the raw and processed materials index. All three rose last year.

Consumer prices were pulled up by food prices particularly those for fresh vegetables but this effect is expected to be short-lived. Besides those for food and services all other prices went down.

"So we conclude that the consumer price index will remain stable. Industrial manufacturing prices were rebounding from the falls of the previous year when the index dropped 3.6 percent in the first quarter, 2.3 in the second quarter, and then 1.4 in the third," Yao says.

Any increases in the prices of the materials used in production are sure to trigger increases in the prices paid by consumers. In recent years, declining grain production coupled with an upsurge in the international market prices for both grain and oil have all contributed to the high price of grain and oil in China. What's more, rapid economic growth pulls up prices in the service sector. So taking everything into consideration it seems that the CPI is set to rise in 2004.

But Yao also says that there is still the potential for growth to continue at present levels without the risk of significant inflation. Sixty percent of China's economy depends on exports, which means most commodity prices are set in the context of international markets. As long as international prices remain low China's commodity prices will largely follow suit. Even if some commodity shortages should occur, China has sufficient foreign reserves to be able to step up its imports.

Based on present conditions, the National Bureau of Statistics sees no evidence of significant inflation. China's consumer prices may go a little higher but will generally remain stable. CPI will remain at 2 to 3 percent.

(China.org.cn by Li Liangdu, March 14, 2004)