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Consumer price hikes expected to ease

By Ding Qi (chinadaily.com.cn)
Updated: 2008-07-09 16:10

The country may see a continuous slowdown in economic growth as well as consumer prices in June, but inflationary pressure may hang on until next year, according to the latest analysis from bankers.

Investment bank Goldman Sachs predicted in a report released Monday that China's GDP growth may decline to 10.1 percent in the second quarter from the first quarter's 10.6 percent during the same period of last year.

Consumer price index (CPI), a major gauge of inflation, is expected to rise 7.1 percent year-on-year in June, slower than the 7.7-percent growth in May due to falling food prices nationwide, according to the bank.

In addition, if the government sticks to a tightening monetary policy, CPI growth will see further declines in the second half of the year, it said.

The National Statistics Bureau is scheduled to release the June CPI and other economic figures next week. If the CPI falls as expected, the nation will see two consecutive months of easing inflation.

The State Information Center, a think-tank under the nation's top economic planner, said in an earlier report that given continuous descending of leading economic indicators, the risk of overheating can "primarily be wiped off."

However, Goldman Sachs anticipated that June's producer price index, the measure of factory-gate prices, may have grown faster at 8.3 percent. The surging prices of petroleum and coal in the past months are seen as the major reason.

International crude oil prices soared nearly 50 percent since the beginning of this year. Meanwhile, major commodity futures like soybean and corn also rocketed to historic highs, making cost-driven inflation a worldwide headache.

Last month, the Chinese government raised prices of processed oil and electricity amid global energy price hikes. Although the move may help smooth domestic energy pricing mechanism and bring relief to refiners and power firms, some fear that the hike may affect the cost of corporate users and lead to higher prices.

Another report by the Industrial and Commercial Bank of China (ICBC) said that since the cost pressure may not ease in a short period, the current inflation cycle may peak next year before falling into a downward trend.

However, with benefit from growing domestic demand, macro-economic control improvement and favorable external conditions, China's economy is less likely to see major swings during the next three years, the report said. But preventing inflation and minimizing economic fluctuations should remain the main target of financial policies within the period, it added.