Central government agencies have pledged to closely monitor any possible inflation after recent reports about food price increases.

At an international conference in Beijing, Zhou Xiaochuan, governor of the People's Bank of China (PBOC), said even though China's consumer price index (CPI) now remains low and within an acceptable band, there is likelihood that inflation may "raise its head" at any time.

Zhou said the PBOC "has to remain concerned" about the CPI.

Fluctuation on the global market could also affect domestic prices, he added.

His remarks coincide with the release of a report by the Rome-based Food and Agriculture and Organization (FAO) of the United Nations that the surge in the world's cereal prices this year had reached "levels not seen for a decade."

According to figures from the National Bureau of Statistics (NBS), last month, China's CPI rose 1.9 per cent year on year, as compared to investment analysts' forecast of 1.5 per cent.

Most economists interviewed by China Daily said that during the festival season from December to February, the price of all food items would probably remain high.

NBS figures show the CPI last month rose 1.8 per cent in urban areas and 2.1 per cent in rural areas, indicating higher prices for farm products.

In fact, food prices recorded the highest rise, up 3.7 per cent year on year, as compared to only 1 per cent for non-food items.

Cereals were up 4.7 per cent, edible oil 6.2 per cent, meat and poultry 7.6 per cent, and eggs 11.7 per cent.

The central government has moved to stabilize grain prices in the last couple of weeks by releasing State grain stocks to the market.

The move is necessary for maintaining social harmony, especially during the festival season, Wang Jinmin, an official with the State Council Development Research Centre, told China Daily.

Grain price rises are likely to level off in a few weeks. But fruit and vegetable prices will continue to edge upwards, according to a forecast by the Ministry of Commerce.

China's food price rises have been fuelled by investor enthusiasm in biofuel production, particularly in the making of ethanol fuel, according to Xu Weiping, an information officer with the Ministry of Agriculture.

There has been a rising demand for grain as an industrial material in spite of the nation's good summer and autumn harvests, according to NBS grain output reports.

The FAO report said the world's rising cereal prices were due to a growing demand for biofuel production and poor harvests in some countries.

Commenting on China's role, A. Abbassian, an FAO commodity analyst, told China Daily that China's selling or buying will "have a great impact" on the world's food prices.

If China had exported more corn to the international market, the world price would not have risen so high, Abbassian said. While in wheat, by not having significantly increased its imports, China has helped the world price remain stable.

(China Daily 12/12/2006 page1)