In­fla­tion ex­pected to rise next year, warns think tank

China Daily (Hong Kong) - - BUSINESS DIGEST - By ZHENG YANGPENG zhengyang­peng@chi­

In­fla­tion in China will quicken next year as food prices, wages and rents in­crease, a cen­tral gov­ern­ment think tank said on Mon­day.

The Price Mon­i­tor­ing Center, a re­search in­sti­tute un­der the top eco­nomic plan­ning body, the Na­tional De­vel­op­ment and Re­form Com­mis­sion, fore­cast that the con­sumer price in­dex will rise more than 3 per­cent next year.

It also es­ti­mated that the CPI will show an in­crease of 3.2 per­cent in the fourth quar­ter of this year.

The CPI jumped un­ex­pect­edly in Oc­to­ber, in­creas­ing 3.2 per­cent af­ter sev­eral months of mod­er­ate gains.

In the first 10 months of the year, the CPI was up 2.6 per­cent, well be­low the gov­ern­ment’s tar­get of 3.5 per­cent.

The center fore­cast that food prices will con­tinue to show up­ward mo­men­tum this year and lift the over­all in­fla­tion level by 0.2 to 0.5 per­cent­age point.

Al­though the na­tion’s har­vests might be fa­vor­able, pro­vid­ing a good base for food price sta­bi­liza­tion, other fac­tors are likely to keep food costs ris­ing. Those fac­tors in­clude higher pes­ti­cide costs, more de­mand for ir­ri­ga­tion and ris­ing agri­cul­tural wages.

The CPI will also be driven up as the pro­ducer price in­dex, which shows costs at the whole­sale level, de­clines more slowly or even rises, the center said.

A boom­ing prop­erty mar­ket will drive up rents and hous­ing-re­lated ma­te­rial costs, and that will even­tu­ally trans­late into higher house­hold spend­ing on real es­tate.

This fac­tor could raise the in­fla­tion rate by 0.1 to 0.3 per­cent­age point.

Un­like con­sumer price in­dexes in ma­ture economies, in China, food costs rep­re­sent the bulk of the in­di­ca­tor. Ac­com­mo­da­tion ex­penses take a much smaller piece of the house­hold spend­ing pie.

Another CPI fore­cast, based on Bloomberg News’ sur­vey of econ­o­mists, sees mo­men­tum for an up­swing in China’s in­fla­tion.

But its fore­cast is higher than the NDRC’s, putting the num­ber for 2014 at 3.2 per­cent. It es­ti­mated a 3.2 per­cent rise in the fourth quar­ter of this year.

Another re­port, re­leased on Mon­day by the State In­for­ma­tion Center, also af­fil­i­ated with the NDRC, put next year’s CPI gain at 3.2 per­cent. It fore­cast that av­er­age hous­ing prices na­tion­wide will rise another 5 per­cent next year.

Tang Jianwei, a se­nior re­searcher with the fi­nan­cial re­search center at Bank of Com­mu­ni­ca­tions Ltd, said ex­pe­ri­ence in­di­cates that China’s CPI has en­tered an up­ward cy­cle that could last for two years.

The high­est point in this cy­cle could oc­cur next year, Tang said.

“The up­ward pres­sure for in­fla­tion next year will be a bit higher than this year, and next year’s high point could be more than 3.2 per­cent,” he said.

With prices ap­par­ently set to rise, the NDRC of­fered sev­eral sug­ges­tions.

The re­port said that the gov­ern­ment should rein in “un­rea­son­able” prop­erty price hikes and ex­pand the trial pro­gram for prop­erty taxes.

The agency, while ad­mit­ting that the pi­lot tax pro­gram hadn’t had much im­pact on prop­erty prices in the cities in­volved, urged that the tax be ex­tended be­yond newly bought hous­ing to all res­i­dences, new or old.

The tax rate should also be raised, it said.

The re­port urged the es­tab­lish­ment of a sys­tem to dis­close civil ser­vants’ as­sets, in an ef­fort to rein in hous­ing-re­lated cor­rup­tion.

In re­sponse to calls for lib­er­al­iz­ing en­ergy prices — specif­i­cally oil, nat­u­ral gas and elec­tric­ity — the re­port cau­tioned that re­forms should pro­ceed in line with ac­tual cir­cum­stances.

The re­port called for min­i­miz­ing the spillover of higher prices by levy­ing spe­cial div­i­dends on the producers of those com­modi­ties. Those levies should be used for sub­si­dies to con­sumers, it said.

An an­nounce­ment af­ter last month’s Third Plenum of the 18th Cen­tral Com­mit­tee of the Com­mu­nist Party of China promised to lib­er­al­ize oil, nat­u­ral gas and elec­tric­ity prices, which fu­eled the ex­pec­ta­tion that prices would soar once con­trols are eased.

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