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Mark O'Neill

Two consecutive months of increases in Shanghai consumer prices may be a sign that almost two years of deflation on the mainland are at an end.

 The statistical bureau yesterday said consumer prices rose 3.06 per cent last month from a year earlier after rising 1.2 per cent in June.

 'This is a good sign for the economy,' a spokesman said.

 'Shanghai was one of the first [cities], when prices went into negative territory, and now it is among the first when they pick up,' he said.

 'Coastal cities always take the lead, while inland areas react more slowly to policy measures. Several other major cities, including Beijing, have recorded positive inflation.'  Last month's figures at the national level are expected to be released in the next few days.

 However, economists warned they probably would continue to show negative growth, as most people were reluctant to spend due to the uncertainties caused by, among other things, the reforms of state-owned enterprises and housing and medical care.

 In June, national retail prices were down 3.4 per cent year on year, while the consumer price index fell 2.1 per cent.

 In Shanghai, retail prices last month edged down 0.1 per cent, their lowest fall in 27 months.

 The retail price index measures a narrow range of products, mainly daily necessities, while the consumer price index's broader range includes the cost of housing, medical care, transport and education.

 The spokesman attributed the turnaround to spending by people who had profited on the stock market, an increase in wages of civil servants, government measures to bolster consumption, enterprises restructuring their products and natural disasters putting up the price of vegetables.

 The price of pork also rose after the government reassured consumers over the quality of local meat following rumours of an epidemic, he said.

 Last month, food prices rose 3.4 per cent from a year earlier, fresh vegetables were up 42.5 per cent, fruit rose 12 per cent and pork, poultry and fish costs also increased.

 Prices of clothes, furniture and electrical appliances also rose.

 The bureau said inflation would remain positive for the rest of the year.

 This will be encouraging news for the mainland's leaders, for whom ending deflation has been an economic priority over the past 12 months.

 Beijing is reportedly considering another stimulus package of up to 100 billion yuan (about HK$93 billion) this year to boost the economy after a 200 billion yuan package in state bond proceeds and bank loans helped power the economy to 7.8 per cent growth last year.

Tough for retailer, Page 8 



Shanghai spending rise hints at deflation's end