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China facing inflation risks: central bank acknowledges

China facing inflation risks: central bank acknowledges
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First Published: Thu, Aug 09 2007. 01 02 PM IST
Updated: Thu, Aug 09 2007. 01 02 PM IST
Beijing: China’s central bank has finally acknowledged the nation’s red-hot economy is facing rising pressure from spiralling prices and inflation risks are “worthy of attention”.
The People’s Bank of China said in its second-quarter monetary report published on 8 August that the current rising prices were not solely caused by accidental and temporary factors, adding that inflation risks were on the rise.
It warned that the price hikes of food products could spread to other consumer products.
The report identified four reasons behind the increasing risk of inflation.
It said prices for grain and meat products would not fall in the short term and uncertainties over the autumn harvest were aggravated by the ongoing drought.
Meanwhile, the demand for grain is increasing from both the public and the bio-fuel industry.
The meat prices would probably continue to rise in the long term owing to the rising feeding costs and the short supply, which would not be replenished in the short term due to the breeding cycle of pigs, and the price hikes of meat could easily spread to other food products, the report said.
Prices of energy and resources are under pressure as the world petroleum price has climbed to an even higher level and the domestic pricing reform of resources and the country’s environmental protection efforts would also push the prices higher, it said.
The report also said labour costs were rising which would eventually raise the prices of consumer products.
People’s anticipation of inflation had been enhanced, and it would put further pressure on price hikes, it said.
A survey by the central bank in the second quarter showed that 40.2 per cent of those interviewed, the second highest record since 1999, said they were worried about inflation.
China’s consumer price index (CPI) rose 3.2 per cent in the first half of this year, and the growth rate was 1.9 percentage points higher than the year-earlier level.
Price hike for foodstuffs, mainly grain, meat and fowl and eggs, contributed significantly to the rise. Statistics show that foodstuff prices rose 7.6 per cent, with grain price up 6.4 per cent, egg price up 27.9 per cent and prices for meat and fowl as well as related products up 20.7 per cent in the first half.
At the same time, the PBOC said it would put the task of preventing the national economy from overheating as the top priority of current macro control.
The country’s economy has recorded a stable and fast growth in the first half, and it is highly possible it would maintain a high growth rate in the second half under the favourable conditions, it said.
However, it pointed out there was a more obvious trend for the economy to shift from fast growth to overheating.
The expanding trade surplus and rapid growth of bank loans and investment remained big challenges to the economy, it said.
China’s GDP expanded 11.9 per cent in the second quarter this year, lifting first-half growth to 11.5 per cent, the National Bureau of Statistics announced in July.
The central bank said it would continue to implement the prudent monetary policy in the second half and would call into necessary macro control measures to maintain the stability of the country’s financial situation.
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First Published: Thu, Aug 09 2007. 01 02 PM IST
More Topics: China | Economy | inflation | food prices | grains |