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)
