June 12, 2012

China may limit 2012 CPI growth under 4%

The growth of China's consumer price index (CPI) may be controlled under 4% in 2012, the country's aim, though pressure from ballooned investment last month and upcoming pricing reforms within this year may again hinder its sliding pace.

China jump-started a series of investment-booming measures in May, including accelerating projects approvals, encouraging private investment participating in economic development, and giving RMB2 trillion (US$0.31 trillion) of credit line to the Ministry of Railway, so as to boost the decelerated economy. But expanded investment is also likely to push up the prices again.

In addition, the government is also expected to push forward price reforms in electric power, water and natural gas within the year which may press on the CPI as well.

However, the above factors are unlikely to stop the downward pace of the CPI. It is forecast that the CPI rise may continue to be eased in the second and third quarter of the year but may see a slight rebound in the fourth quarter. As for the whole year, it is widely expected that the reading may stand at 3.3% to 3.5%, within the targeted 4%.

Wang Jun, vice director in the Department of Consultancy of China Center for International Economic Exchanges, forecast that the price level is expected to fall back following the economic slowdown.

He held that external factors to affect the prices in the second half of the year include prices of crude oil, commodities such as grains, and exchange rate of the US dollar, while the internal factors may involve the time when the economy may bottom out and changes of food prices.

Major institutions and analysts deemed that China's economy is expected to touch the bottom in the second half of the year. A report released by the strategic department of the Agricultural Bank of China recently said that China's economic growth is expected to bottom out in the second quarter of this year, and the growth will stabilise and rebound in the second half of this year.

Meanwhile, it is of little possible to see large-scale price rises in agricultural products in the second half of the year, according to information unveiled at a meeting held by the Ministry of Agriculture at the end of May. As the agricultural authority and the market are generally confident in obtaining summer grains harvest this year, the prices of grains are expected to keep stable.

The CPI posted a lower-than-expectation rise of 3% year on year in May, 0.4%age point lower than the growth in April. The eased CPI was resulted from decrease of prices of agricultural products in May.