Mainland think-tank warns that inflation could become serious

PUBLISHED : Friday, 12 October, 2007, 12:00am
UPDATED : Friday, 12 October, 2007, 12:00am

Surging production costs, excessive fixed-asset investments and rising global commodity prices could lead to serious inflation in the mainland, a government think-tank has warned.

The Chinese Academy of Social Science said in a study that in order to rein in inflation, the government will make price stabilisation its prime objective next year.

Although pork and other food prices have been seen as the culprits behind the current rising inflation, they were not the underlying causes, the study said.

Increasing labour and upstream product costs were also adding inflationary pressure and would sustain inflation even if pork prices stabilised, it said.

Other inflationary causes included excessive liquidity, air pollution reduction measures, which have increased production costs, and climbing prices for commodities such as oil, the study said.

The Ministry of Commerce on Tuesday said that pork prices slipped slightly during the week-long National Day holiday after Beijing pledged to increase supply.

The consumer price index, a key inflation measure, rose 6.5 per cent in August from a year earlier, the fastest growth in 11 years. It was fuelled by an 18.2 per cent rise in food prices and especially an 86.5 per cent surge in pork prices.

The Asia Development Bank last month estimated that mainland inflation could hit 4.2 per cent this year, well above Beijing's target of less than 3 per cent.

Despite inflation, the National Bureau of Statistics yesterday said the consumer confidence index rose from 96.8 in the second quarter to 97 points in the third quarter.

Yi Xianrong, a professor at the think-tank's institute of finance and banking, blamed inflation on low interest rates causing excessive liquidity in the property and stock markets.

Climbing prices

An 86.5 per cent surge in pork prices has helped fuel inflation

In August, the mainland consumer price index rose the fastest in 11 years by: 6.5%