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China Works to Curb 'Structural Price Rise'

China's government should continue taking measures to prevent "structural price rises" from becoming "obvious inflation", said Wang Yiming, an expert with the National Development and Reform Commission (NDRC).

Wang, vice president of the Macro Economy Research Institute of the NDRC, described recent price hikes as within an "acceptable" range compared with international levels, because it was less than five percent and other countries had also seen big CPI rises last year.

Surge in prices of staples such as pork, cooking oil and grain since May 2007 lifted the country's consumer price index (CPI) to 4.8 percent in 2007, well above the government's three-percent target set at the beginning of last year.

In November when China saw a CPI rise of 6.9 percent, the highest in 11 years, the CPI increase in Russia was 11.1 percent, Vietnam 10 percent, Indonesia 6.7 percent, India 5.5 percent, US 4.3 percent, Brazil 4.2 percent year on year, mainly pushed by energy, resources and foodstuff prices.

"Easing inflationary pressures needs a process and price rises will continue for some time this year," Wang said.

The government should tighten price supervision of daily necessities and provide assistance to low-income families to ride out the price rises.

Wang also suggested that the government should strengthen tracking and research of global prices of grain, energy and other important products to facilitate the decision making in domestic macroeconomic controls.

The NDRC, China's top economic planner, in mid January announced price caps on a range of products, including grain, edible oils, meat, milk, eggs and liquefied petroleum gas.

Food producers were required to get government permission for any new price hike. Last week, the government extended the order to fertilizer prices in order to cushion the impact on farmers.

A recent clampdown had reduced liquefied petroleum gas (LPG) retail prices by 19 percent in major Chinese cities.

The move was another effort taken by the government after the temporary price freeze on gasoline, natural gas, electricity, water, heating and urban public transport fees.

China's leaders made it clear at the annual central economic conference in December that curbing economic overheating and inflation was their highest economic priority in 2008.

"Taking effective measures to stabilize commodity supply and regulate the market order is crucial for maintaining the country's economic growth momentum and social stability," said Wang.

Wang pointed out food prices rose 12.3 percent in 2007 year on year, which contributed to 85.4 percent of the CPI rise, or 4.1 points on the CPI surge, while non-food price increases only accounted for 0.7 points of the 4.8 point CPI rise.

In particular, the average pork price nationwide rocketed 48.3 percent in 2007 from a year earlier, driving up the CPI increase by 1.5 points.

"The pork price was underestimated in 2006, which resulted in a sharp decline in the number of pigs, especially sows. The shortfall was aggravated by a pig cull after a serious outbreak of blue-ear disease last year," said Xie Fuzhan, director of the National Bureau of Statistics.

"The cause of rocketing prices is overheating and excess liquidity," said Lin Songli, a macroeconomic analyst at Guangzhou-based Guosen Securities.

China's central bank, the People's Bank of China, used six interest rate hikes and 11 reserve requirement ratio increases since last year to tighten monetary supply. On January 25, the reserve requirement ratio rose by half a percentage point to 15 percent, the highest in 24 years.

China's grain output exceeded 500 million tons in 2007, and the inventory of major farm products including wheat, rice and maize is enough to meet domestic market demand, Wang said.

"More than 70 percent of industrial products and more than 80 percent of consumer goods are oversupplied in the market. The price hikes have been confined only to shortages of a few items," he added.

If the government could take effective measures to cushion short-term price rise factors and increase supply, prices would stabilize, he said.

(Xinhua News Agency January 31, 2008)

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