During the month, the consumer price index (CPI) - Chinese policy-makers' key inflation gauge - dropped 0.4 percent compared with a year ago, the National Bureau of Statistics said yesterday.

December's CPI was an improvement on the 0.7 percent decline in November and the 0.8 percent drop in October.

Zhang Liqun, a senior research fellow at the Development Research Center at the State Council, said the CPI improvement was mainly because of booming local and overseas demand, which helped balance supply and demand.

The government's efforts to cut overproduction and increase the capacity for new products also contributed to the improvement, he said.

In December, the price of grains fell 1.3 percent from a year earlier, while vegetable prices jumped 8.1 percent and fruit prices moved up 3.3 percent, the bureau said.

The price of clothing fell 3.2 percent year-on-year while the cost of household equipment fell 5.4 percent, it said.

The price of petrol surged 18.7 percent year-on-year and diesel jumped 19.1 percent.

For 2002, the CPI dropped 0.8 percent, the bureau said.

Qi Jingmei, a senior economist at the State Information Center, said the deflationary pressure will continue to ease this year, but consumer prices will remain at a low level.

"The CPI is likely to grow about 0.5 percent this year," she said.

The national economy will continue to advance at a higher rate this year, topping 8 percent in 2002, Qi said.

"This will play an active role in the CPI's growth," she said.

Meanwhile, local governments are likely to take a series of measures to intervene in consumer prices, Qi said.

The government will also continue to increase money supply to support economic development.

Furthermore, faster industrial production expected this year will require a lot of energy and raw materials, which is beneficial to CPI figures, Qi said.

She said the consumer goods market, which is expected to enjoy a number of favorable factors such as an increase in residents' income and a boost in consumption, will grow at a higher level.

(China Daily January 21, 2003)