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New Inflation Control Targets Pragmatic, Reasonable

China's newly-unveiled inflation control target, although matching last year's figure as the highest growth in a decade, is still pragmatic and reasonable, economists say.

Premier Wen Jiabao told a parliamentary session on Wednesday the country will strive to keep this year's consumer price index (CPI) increase at around 4.8 percent.

Acknowledging the difficulty in curbing price increases, Wen said an upward pressure on prices would remain great this year because factors driving prices up were still at work.

China maintained a steady annual CPI rise, a major inflation gauge, averaging 2.1 percent between 2003 and 2006. Last year, the index was fed by rising food and housing costs to reach a decade-high of 4.8 percent, well over the original 3 percent target.

The price rises have raised concerns they may affect global inflation, but economists said such an effect shall not be overstated.

Zhuang Jian, senior economist with the Asian Development Bank mission in China, said "the new target is a practical response to the price increases, and again demonstrated the government's determination of macro-management".

"Sustained increases of international grain and oil prices are important factors that powered the CPI hikes in China. Such impacts have been way stronger than the influence of China's inflation to the global market," he said.

Crude oil prices have quadrupled in the past five years and exceeded US$100 per barrel for the first time at the beginning of this year. Edible oil prices nearly doubled last year on international markets.

Zhuang argued that despite the domestic inflation, the low labor cost in China had been one of the stabilizers of prices in the international market, particularly in the face of the weakening US dollar. Textiles and industrial products, which accounted for the bulk of China's exports, remained not much affected by the inflation.

"If we peel off inflationary factors inherited from last year, which is about 3.4 percent, the margin we need to hold down through macro-management is only 1.5 percent. That's not high at all," said Zhang Liqun, a researcher on macro-economy with the Development Research Center of the State Council, China's cabinet.

He said the price index would be kept down gradually, as factors such as the severe winter weather that pushed up the January CPI to 7.1 percent, receded with the reconstruction efforts.

Last year, China hiked interest rates six times as part of its attempt to tame inflation and cool the economy. Experts said that such measures took time to work and predicted that commodity prices would stabilize after June or July, when demand for farm produce was better met.

"Commodity prices will be kept down in the latter half of the year, through increasing subsidies and investment in agriculture to restore supplies of farm produce like pork," said Li Daokui, director of the Center for China in the World Economy at Tsinghua University and a member of the Chinese People's Political Consultative Conference (CPPCC).

Along with the new inflation control target, Wen announced a series of measures on Wednesday, including expanding production of grain, meat and other items, restricting the industrial use of grain and grain exports, increasing imports of consumer goods that are in short supply and aiding the low-income population.

Provincial governors and mayors will be held responsible for the supply and prices of grain and non-staple foods, he added.

(Xinhua News Agency March 6, 2008)

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