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Measures in place to cut CPI growth rate

By Qi Jingmei (China Daily)
Updated: 2007-11-23 07:18

Along with the robust economic growth, the price of many commodities has been rising since the start of the year.

The consumer price index (CPI) has witnessed a higher growth rate month after month and it was up by 4.4 percent from January to last month. The CPI rise for the year is expected to be 4.6 percent, higher than the target of 3 percent set by the authorities earlier this year.

The National Development and Reform Commission, the country's economic watchdog, initiated a series of policies in cooperation with other ministries, departments and local governments at different levels, to contain the price rises.

Most analysts predicted the growth momentum would ease in October after the policies hit home and the autumn grain was harvested. Yet official statistics show that the CPI jumped 6.5 percent last month after it dipped to 6.2 percent in September from 6.5 percent in August, its peak since 1996.

The rebound of CPI growth despite measures to curb price rises is driven by multiple factors, one of which is food price hikes.

Both grain and pork have witnessed a shortage in supplies. Their prices have been on an upward curve since late last year. Hence, prices of other foodstuff were pushed up. Food prices make up about 33 percent in the CPI computation, therefore, the rise.

The central government released grain and pork in the State reserves to the market in order to bring down food prices. The summer and autumn crops both turned out to be bumper harvests. So the food supply was much boosted, pulling down CPI growth to 6.2 percent in September from the 6.5 percent in August.

Last month, the consumption of pork increased again, boosting prices for several weeks. The price rocketed by 54.9 percent in the month.

During the same month, the price of vegetables increased by 29.9 percent. The price of edible oil and poultry were up by 34 percent and 38.3 percent respectively.

Food prices rose by 17.6 percent last month, 0.7 percentage points higher than in September. Food prices contributed at least 2 percentage points in CPI growth for the month.

The increase in food prices is the main reason for the CPI growth last month, after dropping slightly in September.

Price rises in refined oil and other fuels is another factor that cannot be ignored in the CPI growth.

The price of oil in the international market has reached a very high level. World economic prosperity has increased demand for oil but suppliers have not been able to keep pace. Crude oil is being sold for about $95 per barrel, which puts great pressure on petroleum refiners in China.

The authorities have raised the price of refined oil, natural gas and other fuels, furthering the impact of the rises to the common people.

Statistics show that the price of water, electricity and other utilities grew by 2.9 percent, 1 percentage points higher than in September.

The third factor playing a significant role in CPI growth is the continuous price hikes in consumer goods.

The statistics collated for CPI computation also includes the price of consumer goods and services. The price of consumer goods makes up 60 to 70 percent in CPI calculations, it plays an important part in its movement.

The industrial sectors of many countries have seen an accelerated development in their capacities in recent years and some have experienced over-capacity in relation to market demand. Hence, consumer goods have seen stable prices for years, some have even witnessed a drop.

This situation changed early this year when prices of industrial products began to climb. The growth in the price of consumer goods was a moderate 2.3 percent in January, jumping to 7.8 percent last month. Considering the big role the price of consumer goods plays in CPI computation, it is not difficult to understand its driving force in the index.

Prices of industrial products have shown enhanced growth since July, primarily driven by rapid economic growth. GDP growth was 11.4 percent in the first three quarters, which has created more demand for industrial products and pushed up prices.

Industries are also facing price hikes in fuels and raw materials, so it is only natural for them to raise prices to balance their higher costs.

Labor costs have also increased after the State introduced several measures to promote the income of common people, like raising the minimum wage level, the salary of employees, pensions, and the wages of migrant workers.

The CPI increase last month will not change the overall slowdown of the price hikes. Price rises this month and next are likely to be between 5.5 percent and 6 percent, a rather moderate rate.

And as more policies for containing price rises take effect, coupled with the further easing of the grain shortage and other agricultural produce, food prices will become more stable or even drop, reducing CPI growth.

The author is an economist with the State Information Center

(China Daily 11/23/2007 page10)