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Experts alert to inflationary trend
(China Daily)
Updated: 2004-03-13 00:06

February's consumer price index (CPI), policy-makers' key inflation gauge, eased significantly from 3.2 per cent price growth in January, the bureau said.

Urban CPI rose a year-on-year 1.4 per cent in February, while that in rural areas rose 3.3 per cent, it said.

Qi Jingmei, a senior economist with the State Information Centre, said the lower CPI figure in February was mainly because of the week-long Lunar New Year holiday that fell in February in 2003 but in January this year.

"Due to a spending spree last February, the prices were high that month," she said.

But this year, the prices returned to normal in February because the spending spree was one month earlier, she said.

Zhu Jianfang, an economist at China Securities, agreed with Qi, adding that the CPI would go back to a relatively high level in March.

The higher CPI in the previous two months, which stood at 3.2 per cent -- the biggest in nearly seven years, increased worries for both government officials and economists who thought the country's economy might overheat.

People's Bank of China's Governor Zhou Xiaochuan said the government should be alert to possible inflation.

Researcher Wang Zhao of the State Council's Development Research Centre said there are already some early signs of inflation.

Zhu Jianfang said if CPI continues to stay at the 3 per cent level or higher in the coming months, there will be the possibility of raising interest rates.

Song Guoqing, a professor at Peking University, said the government should already have raised the interest rate to deal with the increasing inflationary pressures.

"If people feel the trend of prices rising, they will rush to buy more goods," he said.

The panic purchasing will push commodity price rises further, he said. "Then, inflation will occur."

The government should adjust the interest rate in a timely fashion, he said.

Presently, the benchmark one-year bank deposit rate is set at 1.98 per cent.

"People are losing out when they save their money in banks because of low interest rates," he said.

The lower interest rate would also have an impact on people's consumption behavior, he said.

People would borrow money from banks to buy larger items like houses and wait for further price rises to make profits.

This would stimulate demand, which in turn fuels inflation, he said.

The lower interest rate would also stimulate investment, some areas of which have been considered overheated, Song said.

But Zhou Xiaochuan said the government chose not to raise the yuan interest rate this month, because inflation was still mild.

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