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January CPI expected to rise 6.5%
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Despite heavy snow in most parts of southern China, the country's consumer prices index may grow 6.5 percent year on year in January, roughly the same as the December, Chen Xiwen, head of the Office of the Central Leading Group on Rural Work, said on Thursday at a State Council press conference.

"The storms have had a severe impact on agricultural production, mostly in the south. The impact on fresh vegetables was catastrophic in certain areas," he told reporters.

"But considering most of the winter grain crops are grown in the north, the supply of grain, pork and edible oil nationwide largely remains intact," said Chen, who added oil crops in the middle and lower reaches of the Yangtze River were "seriously" affected.

By Tuesday, a total of 105 million mu (7 million hectares) of farmland, mainly located in the mid and downstream of the Yangtze River, was hit by the snow, in which 11.3 million mu lost all their output, according to statistics released by the Ministry of Agriculture on Thursday. Particularly, cole, vegetables, oranges and wheat crops suffered severely from the snow.

The already tightened supply was further stretched by disrupted transportation, which was also caused by continuous snow and sleet over much of China. Premier Wen Jiabao had vowed to ensure the transportation of daily necessities.

The public has started to feel the pressure as vegetable prices escalated across the country. In Changsha, Wuhan and other hard-hit cities in the southern, central and eastern regions, vegetable prices have more than doubled. Even in areas not affected by snow, such as Beijing and the southern Guangdong province, prices have also risen sharply.

"Cucumbers were five yuan (69 U.S. cents) per kilo 10 days ago, now you have to pay 8.2 yuan. Broccoli almost tripled from 2.8 yuan to 8.2 yuan per kilo." said Huang Tianlu, a 45-year-old wholesaler at Xinfadi market, the largest produce market in Beijing.

"As for the impact on the whole year's grain production, we still have to wait and see. We are not sure how long the storms would last or whether it would move to the north," Chen said.

"If the storms get worse or expand, China's agricultural production will be affected seriously."

China's consumer price index (CPI) rose 4.8 percent in 2007, with food prices, especially pork, as the major cause of the increase. CPI figures are routinely released by the National Bureau of Statistics.

"Compared with the grain price in the global market, that in the Chinese market rose within a reasonable range in 2007," said Chen.

Experts predicted the CPI could rise about seven percent year-on-year in January.

Zhuang Jian, senior economist with the Asian Development Bank mission in China, said the storms had a short-term impact on transportation and farm production, which might push up CPI in the first quarter in 2008 to 6.5 percent.

"In the long run, however, the impact on inflation is quite trivial," he added.

Deutsche Bank chief economist in China, Ma Jun, said the recent soaring price of farm produce would send inflation up to seven percent or so in January, posing the biggest domestic macroeconomic risk in the short term.

Other risks China faces, according to Ma, include the impact of the U.S. economic slide on China's employment in export industries and possible too big correction in the A-share stock market after the Olympics.

Ma forecast the gross domestic product this year would rise 10.4 percent, slightly lower than the 2007 figure of 11.5 percent.

"The shopping spree in the coming Spring Festival, rising transportation costs due to the storm and a relatively low CPI figure in January last year is likely to nudge inflation this month up to around seven percent," said macroeconomic analyst Lin Songli of the Guangzhou-based Guosen Securities.

Local governments have taken a series of interim steps to help cut the prices of daily necessities. Wuhan in the central Hubei province has ordered all highway and expressway administrators to exempt trucks carrying vegetables to the city from toll. It has also decided to give a one-off subsidy of 120 yuan to 102,000 low-income families in the city by Wednesday.

In neighboring Hunan Province, the government provided instant noodles, water, bread and biscuits to stranded passengers. Changsha, the capital of Hunan, restricted the prices of some goods in affected areas. About 300 teams have been sent to hard-hit areas to monitor prices.

(Xinhua News Agency February 1, 2008)

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