China grapples with inflation, deflation -stats chief
Reuters, 11.09.03, 5:28 AM ET
By Ben Blanchard
SUZHOU, China, Nov 9 (Reuters) - China's top statistician, taking aim at the twin evils of inflation and deflation, has warned rising food prices risk angering hundreds of millions of Chinese while falling steel and cement prices may cripple some firms.
Referring to China's economy as a ship sailing past "innumerable hidden reefs," Li Deshui said on Sunday the existence of both inflationary and deflationary pressures in China were a "major danger," especially with regard to food prices.
"The rise in food prices has led to an increase in prices of people's daily necessities, which is likely a reason for inflation," Li told a conference in the eastern Chinese city of Suzhou.
With food accounting for about 40 percent of China's consumer price index, some economists expect inflation to accelerate markedly from September's annual rate of 1.1 percent.
The food component of China's consumer price index (CPI) was 3.2 percent higher in September than a year earlier.
JP Morgan said that in some regions, wheat prices rose more than 30 percent. In Henan province, according to Citigroup, prices for sesame oil jumped 56 percent.
But while an increase in the cost of the family's groceries is bad news for some, Li did at least expect farmers to benefit from the rise in grain prices.
He also said grain output next year would bounce back.
'REAL SHOCK'
Because food consumes a large proportion of family spending in China, the government must take steps to bring prices under control, observers say.
"An impact on food prices has a real shock," said Gail Fosler, chief economist for U.S.-based business think-tank The Conference Board.
"Food prices will depress discretionary spending and some of the income momentum that you have for buying houses and cars is hit very hard," she said.
On the deflation side, Li warned that some companies in the steel, cement and textiles industries could be forced out of business if prices continued to drop.
"Some firms could find it hard to carry on production," he warned.
With import tariffs to fall further on a range of products from cars to electronic products in line with China's World Trade Organisation entry commitments, a flood of overseas goods could also hurt prices, Li said.
"This will cause the level of prices to fall, and induce deflation."
Copyright 2003, Reuters News Service
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