December 14, 2007

Higher meat and egg prices raise China's CPI; rise seen slowdown in 2Q 2008

In an interview held on Monday (Dec 10), Zhang Liqun, a researcher at the Development Research Centre of the State Council of China, said that the rise in the country's consumer price index (CPI) is likely to slow down towards the second quarter of 2008.

October's CPI was 6.5 percent higher compared with the same month in 2006. The CPI had hovered above 6 percent since August, triggering fears that inflationary pressure may continue to build up.

Significantly higher prices of basic food products such as meat and egg since the second quarter had contributed to the bigger rise in the CPI in the past four months.

In the near term, meat and egg prices are likely to stay high due to firm demand but Zhang said prices of such products are likely to moderate in Q2 2008 with increased supplies and government interventions.

Citing the average annual increase of 6.5 percent for the 1978-2006 period, Zhang said that should the CPI increase 4.5 percent for the whole of 2007, it is still well within the historical range of 6.5 percent for the 1978-2006 period.

For Jan-Oct 2007, the CPI was 4.4 percent higher compared with the same period last year.

The rise in food prices was mainly due to increased usage of grains and oilseeds as feedstock for producing ethanol. By turning food crops towards non-food uses, prices of food products can only increase.