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Inflation may hover around 7%

By Xin Zhiming (China Daily)
Updated: 2008-06-27 08:54

A bank employee counts money in Nanjing, Jiangsu province.

China's inflation for this year may hover around 7 percent, but the country or Asia for that matter can hardly be held responsible for rising inflation in the developed economies, said analysts.

China's consumer price index (CPI), a key gauge of inflation, rose 8.1 percent in the first five months year-on-year. It was 4.8 percent for the whole of last year.

The recent move to raise the prices of oil products has increased pressure on consumer prices, analysts said, adding about half a percentage point to the whole-year CPI growth.

"There has been some impact, but it will not be prolonged," said Song Guoqing, senior economist with Peking University's China Center for Economic Research. "It may not last more than two months."

The biggest boon for policymakers fighting inflation is the high inflation figures in the second half of last year, which will make the year-on-year CPI growth in the second half of this year look more modest, said Chen Xingdong, chief economist of BNP Paribas Peregrine Securities in Beijing.

China's CPI rose 3.2 percent year-on-year in the January-June period of last year before it rose to about 6 percent in the last six months.

The summer harvest of grain, which accounts for about a fifth of China's total grain output, will also add to favorable expectations for stable grain prices, although it is not clear yet what the scenario of the whole-year grain production will be.

People fear the flooding in the southern regions this summer will reduce the country's grain output. But Song said past experiences show that may not be the case. "Flooding might help those drought-hit regions."

Many economists held that inflation, therefore, may trend down in the second half of this year and the whole-year figure may be about 7 percent.

Some economists from developed economies have blamed China and Asia for exporting inflation to those regions.

If China stabilizes its inflation at about 7 percent, as expected, it will still be lower than that of countries such as India and Vietnam, thus helping stabilize inflation in Asia, analysts said.

But even if Asian inflation remains much higher than that of the US or Europe, it is not Asia that should be blamed, said Zhuang Jian, senior economist with the Asian Development Bank in Beijing.