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China's consumer prices registered a 5.3 percent year-on-year increase in August, putting more pressure on the central bank to raise renminbi interest rates for the first time in nine years.
The consumer price index (CPI), policy-makers' key inflation gauge, was the same as in July, but higher than the forecasts made by many economists.
"This is much higher than what I predicted," said Qi Jingmei, an economist with the State Information Center, who has monitored changes in CPI for years.
"If there are no new factors pushing up prices, CPI should be about 5 percent," she said.
But higher food and public utility prices during the month kept CPI at a relatively high level, she said.
Prices for public utilities such as water, electricity and fuel rose 9.6 percent year on year in August, the statistics bureau said.
Grain prices rose 31.8 percent, and egg prices increased 30.3 percent, the bureau said.
Prices for fresh vegetables rose 5.8 percent year on year, it said.
August's CPI was also slightly higher than the 5.2 percent growth predicted by Zhu Jianfang, an economist at China Securities.
"The higher CPI will continue in the coming one or two months," he said.
People's Bank of China Governor Zhou Xiaochuan said last week the central bank would decide whether to raise the interest rate or to resort to other tightening measures after the National Bureau of Statistics released major economic figures in August.
"But there are contradictions in the August figures," Zhu said.
While the CPI was at a higher level, the industrial output growth picked up in the month.
Growth in fixed-asset investment and money supply also slowed in August.
"There is a possibility that the central bank will raise the renminbi interest rate this year," Zhu said.
Niu Li, another economist at the State Information Center, said the government should keep a close watch on further price rises, because the price pressure is already very great.
"Food prices remain at a higher level, and international oil prices have risen rapidly," he said.
International oil prices rose to as much as US$49 per barrel during the past few weeks.
"There are also signs that raw material prices may rebound," he said.
According to Qi, the price rise would have a certain negative impact on ordinary people's lives.
Chinese people have already suffered a negative interest rate, due to the higher CPI, she said.
"The negative interest rate would result in people's lower expectations for the future," she said.
She cited a recent survey by the central bank as saying that people's level of satisfaction with the current consumer prices dropped to its lowest level since 1999.
The negative interest rate also leads to a decline in bank deposits, she said. "This will make their purchasing power drop."
An average low-income urban family had to pay an extra 34.2 yuan a month (US$4.1) on food during the first five months of this year, due to the increased price of grain and its related products such as eggs and meat. This extra expense accounted for 14.8 percent of the family's monthly expenditure on food.
"Some low-income families have even begun to worry whether their incomes are able to meet the basic needs for food and clothing," Qi said.
"Their health could also be at risk, because they will buy the cheapest products and not pay much attention to the quality of food."
Qi added that the impact of the price rise was greater in rural areas.
Although farmers' per capita cash income rose 16.1 percent year-on-year during the first half of 2004, retail sales in the rural areas grew only 9.1 percent. The growth rate was 5.6 percentage points lower than the urban areas.
The government should not neglect ordinary people's feelings and interests, she said.
The government should manage to raise the renminbi interest rate to increase people's confidence in the future.
(China Daily September 14, 2004)
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