Economy

Soaring prices seen as key economic challenge

(Xinhua)
Updated: 2011-02-16 15:50

Inflation has plagued emerging and developing economies in the Asia Pacific region this year, forcing governments to raise interest rates and adopt other measures to fight soaring prices.

Vietnam's January CPI is expected to surge 12.17 percent year-on-year . The wholesale price index, a major inflation measure in India, rose 8.23 percent, while the inflation rate in Brazil hit 5.99 percent last month.

Harley Seyedin, president of the American Chamber of Commerce in South China, told Xinhua on the sidelines of the ABAC meeting that inflation of 4 percent to 5 percent was a danger sign because experience showed inflationary expectations would strengthen after CPI growth hit that level and spark buying and storing, further driving up prices rapidly.

"We are concerned about that," he told Xinhua, adding companies of the 1,800-member AmCham South China worried about inflation that high as it would bring about uncertainty to their supply chains in China.

Calling China's January CPI data "lower than forecast", Ba Shusong, a financial researcher of the Development Research Center of the State Council, China's Cabinet, said on the sidelines of the meeting that though the inflation issue was worrisome, the situation was still under control.

"As a series of measures by the Chinese government to tame inflation and normalize its monetary policy begin to take effect, the price pressures this year will be much lower than the high levels set in 2007 and 2008, though still greater than last year," Ba said.

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The Chinese central bank raised its benchmark interest rate by 25 basis points last week and increased the bank reserve requirement ratio several times in past months to tighten liquidity.

The Chinese government has stated repeatedly that controlling prices is its top priority and ordered local governments to ensure supplies of agricultural produce to stabilize prices, a main source of inflation.

According to Ba's analysis, China's current inflation was unlike 2007 and 2008, when the inflation rate leapt to an 11-year high of 8.7 percent year-on-year in February 2008.

Ba said the inflation then was mainly driven by skyrocketing food prices, pork prices in particular, but inflation this year was due to soaring prices of vegetables, which had a quicker supply time than pork.

Food prices account for about one third of weighting in the calculation of CPI in China.

"As developed economies keep liquidity at excessive levels, this new round of inflationary pressures challenge not only China, but other emerging and developing economies as well. It is a global challenge for all," Ba said.