The Chinese consumer price index (CPI) is likely to rise by 6-7 percent this year according to a senior official at the National Development and Reform Commission (NDRC), the official China Securities Journal reported Wednesday.

Xu Lianzhong, head of the NDRC's price monitoring department, predicted the CPI will rise by 5.5 percent in the third quarter, and 4.5% in the last quarter of 2008.

China has faced many challenges in 2008, including natural disasters, a depreciating dollar, rising oil and grain prices, and an economic crisis in neighboring Vietnam. Although China has managed to maintain steady and rapid economic growth, inflation has remained high and commodity prices continue to surge, Xu said.

Rising food prices remain the main driver of current inflation, contributing 86.1 percent to CPI growth in the first half of 2008.

Xu noted that this year's overall CPI will be determined by the rate of decline in pork prices, the rate of growth in grain prices, and the effectiveness of government price control measures. He was optimistic pork prices would decline in the remaining months of 2008, but expressed concern that grain prices would continue to rise, citing the possibility of an autumn decline in grain output.

Xu reiterated that China's current inflation is structural, but warned of potential broad-based inflation. Many commodities such as natural resources and public services are currently subject to government price controls, but the current policy direction of gradually removing controls adds to the risk of overall inflation.

Xu said tight monetary policy can only partially relieve the upward pressure on prices. He called on the government to give a bigger role to fiscal policy. He said the government should reduce company taxation, increase subsidies to the commercial and agricultural sectors, and boost the earnings of low-income groups to ease the impact of rising costs.

For more details, please read the complete story in Chinese:

(http://paper.cs.com.cn/html/2008-08/06/content_17265497.htm)

(China.org.cn by Yan Pei August 6, 2008)