Beijing raises inflation forecast to 4.8pc

PUBLISHED : Thursday, 28 February, 2008, 12:00am
UPDATED : Thursday, 28 February, 2008, 12:00am

Snowstorms and surge in raw material prices prompt government to revise CPI target

The central government has revised upwards its full-year inflation target for this year to 4.8 per cent from 4.6 per cent, as higher than expected raw material prices and the impact of the recent blizzards add to pressures, according to a newspaper report.

The inflation target, to be announced at the National People's Congress that opens next week, reflected the government's objective in limiting inflation at last year's level, the 21st Century Herald said.

The original target was set at the actual inflation figure for the first 11 months of last year. Given that the consumer price index climbed to 4.8 per cent during the worst snowstorms in 50 years, disrupting food supplies and transport systems, the government was forced to adjust the target upwards.

Last year's official inflation target was only 3 per cent.

With the CPI surging to an 11-year high of 7.1 per cent last month, tackling inflation is the top priority for the state.

'The snowstorms have made controlling inflation even harder than before, but we will work hard to achieve the target,' Zhou Wangjun, a deputy director of the National Development and Reform Commission's pricing department, told CCTV this week.

While driven mainly by food prices, consumer price inflation also was fed by higher energy and labour costs.

Economists are forecasting the worse to come before an improvement in the second half.

Yan Jiayuan, an executive director of research at Bocom International, said he expected inflation to hit 7.5 per cent this month. The rate would then begin to decline from the end of next month, when the government's austerity measures took effect and food supplies returned to normal levels, he said.

'We hope China's CPI will revert to between 5 per cent and 5.5 per cent in the second half,' Mr Yan said. He declined to provide a full-year forecast, saying it was still 'too early'.

'The government will also use other administrative measures, such as price guidance and subsidies and adjusting export and import regulations, to control price levels,' he said.

Jing Ulrich, the chairman of China equities at JP Morgan, said this year 'could shape up as a year of two halves, with further tightening to combat high inflation and overheating pressures in the near term but policies beginning to ease towards mid-year if inflation moderates and pressure from an external slowdown is felt more.'

Wang Qing, an executive director of Morgan Stanley, said the yuan's appreciation could be used as a 'major measure' to curb inflation.

'It can also help stimulate domestic demand while offsetting the negative impact brought about by the slowdown of the export sector.'

Mr Wang said he hoped to see domestic demand rise from last year's 14.4 per cent to 15 per cent this year. But, in the meantime, he conceded that a large one-off appreciation of the currency was unlikely. 'We expect the yuan to gradually appreciate to 6.80 yuan to the US dollar by the end of the year,' he said.