Inflation to stay at reasonable level, Liu says

PUBLISHED : Saturday, 18 December, 2010, 12:00am
UPDATED : Saturday, 18 December, 2010, 12:00am

The mainland will be able to keep inflation at a reasonable level next year because of sufficient supplies of grain and industrial products, chief banking regulator Liu Mingkang said yesterday.

Emerging countries are facing an 'unprecedented challenge' in combating asset bubble and inflation as their high growth potential attracts overseas capital inflows following the United States quantitative easing policy, according to the chairman of the China Banking Regulatory Commission.

'China has the power to control inflation,' Liu told an annual financial conference hosted by Caijing magazine. 'I think we will be able to keep inflation at a relatively reasonable level next year but that still poses a challenge to our economic policies and management of various sectors.'

The consumer price index rose to a 28-month high of 5.1 per cent last month, prompting top leaders to attach great importance to price stabilisation next year.

Liu said the global economic recovery was slowing and the Western financial system still fragile, adding appeal to the emerging markets, which are growing robustly.

Prices of grain and precious metals have risen this year, while garlic, bean and pepper prices have surged because of speculation.

Noting that there were both structural and cyclical factors behind the country's inflation, Liu toed the official line that the problem was not yet widespread. 'Inflation is mainly being driven by food and residential costs. We have sufficient grain in inventory after seven consecutive years of good harvests, so food prices are unlikely to rise substantially next year,' he said.

Food costs account for 75 per cent of last month's year-on-year jump in inflation.

The sufficient liquidity in the world economic system has also propelled crude oil prices to climb, making costs higher for China's upstream industries, Liu said.

It would be difficult for upstream producers to totally pass on the rising costs to consumers, with competition so fierce in an environment of industrial overcapacity. That would limit inflationary pressures from being passed on to downstream sectors, he said.

'Capital has also been seeping into the real estate market, resulting in price jumps. The increased price volatility should be tackled,' Liu said.

Last month, property sales rose 18.6 per cent from a year earlier to 528.6 billion yuan (HK$616.82 billion) despite a slew of government policies introduced earlier this year to cool the market.