Battling inflation
(China Daily)
Updated: 2008-03-06 07:25

The 4.8-percent inflation target Premier Wen Jiabao announced yesterday will surely help anchor inflation expectations. Being equal to last year's consumer price rise, it indicates that the government will double efforts to prevent price hikes from further accelerating this year.

However, as the premier admitted, the task to hold down inflation will be difficult. Governments at all levels hence must earnestly carry out anti-inflation measures to fulfill this task.

Last year, China's consumer price index (CPI) rose 4.8 percent year-on-year, the highest since 1997, largely due to sharp rises in the cost of food.

Such price hikes have already bitten deep into the pockets of the public, especially the poor, and could erode the profit margins of many domestic businesses.

Worse, in January, the country's monthly CPI jumped by 7.1 percent, a result of price increases during the Chinese Lunar New Year and the severest winter weather to hit central and southern China. And it is expected that the figure will have shot up further in February.

All the measures which the government has adopted to increase the effective supply of key food items and ban excessive price hikes are essential to holding down inflation.

Nevertheless, prices for the means of production have continued rising to catch up with consumer prices, making it necessary to reassess the current round of inflation from the perspective of its driving forces and potential impact.

On one hand, rocketing prices of oil, iron ore and other commodities in the international market have made China's imports more expensive and driven up related domestic prices. It is far from clear how long will the ongoing bull run of commodities last and how much will it affect the domestic price level.

As a rising manufacturing power increasingly integrated into the global trade system, it seems no longer possible to understand China's price level in a purely domestic context.

On the other hand, as the country presses ahead with efforts to raise its environmental and labor standards, a comprehensive study is also needed to determine the impact of rising costs and wages on inflation.

(China Daily 03/06/2008 page9)