May 7, 2008

China's inflation to dip, yet pressures from grain prices will remain strong

China's inflation is expected to drop to 7.5 percent in the second quarter from 8 percent in the first, yet inflationary pressures are seen to stay strong due to skyrocketing grain costs, a top government think tank said.

State Information Center said seasonal changes and government measures to boost agricultural supplies may cause consumer prices to slide in the second quarter.

However, the center added that inflationary pressure is still mounting because of domestic and international factors.

The Beijing-based think tank operates under the National Development and Reform Commission (NDRC).

The Chinese government has been trying to limit consumer inflation under 4.8 percent in 2008 but the consumer price index gained 8.7 percent in February, the highest in 12 years.

The center said that the ongoing price surge of agricultural products in international markets will add to the inflationary pressure in China.

Global agricultural prices climbed 14.6 percent in the first quarter, according to the Ministry of Commerce.

The center also pointed out that China is under growing pressure to raise domestic grain prices due to a demand-supply gap and mounting agricultural production costs from fertilizer and fuel.

Zhou Xiaochuan, governor of central bank, had anticipated inflation to ease after the lunar New Year this February. Yet he did not predict the full-year outlook given the uncertainties in grain and commodity prices, according to Reuters.