Consumer price index forecast to climb 2pc

PUBLISHED : Saturday, 22 August, 2009, 12:00am
UPDATED : Saturday, 22 August, 2009, 12:00am

The mainland's consumer price index will climb out of negative territory and rise to about 2 per cent for the full year, the Ministry of Commerce said.

The forecast projects a much rosier picture of price trends and overall economic performance than market expectations. The general belief this year is for CPI to drop about 1 per cent, overshadowed by looming economic deflation.

'We predict the full-year CPI will be around 2 per cent, thanks mainly to warming consumption and the relatively lower price basis [in the second half last year],' the ministry said.

It said consumption promotion measures taken since the end of last year were paying off. These included more sales networks in rural areas, subsidising farmers' purchases of household appliances, urban families replacing their used electronics and tax cuts for people buying cars.

The ministry predicted full-year retail sales would rise more than 16 per cent from a year ago, compared with 15.2 per cent in July and 15 per cent for the January-July period. But analysts generally were sceptical of the ministry's forecasts.

'I don't believe full-year CPI will [move] out of negative [territory] this year,' said China International Capital Corp analyst Xu Jian. 'It might well start to turn positive in November and remain up in December, but that is not enough to push the full-year price level above a zero level.'

The country's CPI fell 1.8 per cent in July from a year earlier, its sixth consecutive month of decline. For the first seven months, it dropped 1.2 per cent.

Given the CPI level for the first seven months, the index will have to rapidly rise to 5 per cent or higher during the remaining months to ensure a full-year level of about 2 per cent, a mission almost impossible, according to analysts.

The latest research by the State Information Centre predicted a CPI decrease of 1.3 per cent for the third quarter. Last month, the centre posted a CPI decrease of 0.5 per cent for the full year.

Hongyuan Securities analyst Chen Menggen also believed the full-year CPI would stay in negative territory, pointing to the still lukewarm private consumption. 'Domestic consumption demand remains stable so far this year and the overall economy is also gradually bottoming out, but all this doesn't support a fast consumer price rise,' he said.