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Inflation to ease to 4%: govt economist

(BEIJING) China’s inflation will recede in 2008 due to a slowing economy and a drop in food prices, a senior government economist said in a report published yesterday.

Fan Caiyue, a deputy head at the economic research institute under the National Development and Reform Commission, said that China’s consumer price inflation would drop to 4 per cent this year from an estimated 4.7 per cent in 2007. In the China Securities Journal report, he also said that gross domestic product growth would slow to 11 per cent in 2008 from an estimated 11.5 per cent in 2007.

‘The mild adjustment in the macro economy, especially an ebbing of the surge in food prices, will help to ease inflationary pressure,’ he said, adding that food prices would drop in the second half of 2008.

The sub-prime credit crisis was unlikely to lead to a recession in the United States, but if it worsened, it would have a significant impact on demand for Chinese exports, he said. Still, China needed to continue monetary tightening in 2008, including further raising banks’ reserve requirements and  interest rates, to guard against economic overheating, he added.

The central bank increased the share of deposits that banks have to hold in reserve to a historical high of 15 per cent on Jan 13. It raised reserve requirements 10 times and interest rates six times in 2007.

Chen Dongqi, a senior economist at the same think-tank, said that it would be very dangerous if inflation remained above 5 per cent. ‘Then, real growth in household incomes will be much slower than the nominal increase, and that will erode the stability of the economic system and the sustainability of growth.’

But he added that an inflation rate of 3-5 per cent was still acceptable, saying that China faced no serious inflationary threat in the medium term due to overall industrial overcapacity.


Source: Reuters (Business Times 23 Jan 08)


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