Headline CPI gains 2.6 percent year-on-year

The city's underlying inflation rate accelerated in September due to upward pressure on private housing rentals and food prices, according to figures released by the government Thursday.

The headline consumer price index (CPI) gained 2.6 percent from a year earlier, down from the 3 percent rise seen in August. However, lower CPI in September than in August was mainly due to the lower base of comparison in August 2009 when the one-off electricity subsidy was paid for the final month. The measures had been taken to deal with the effects of the financial crisis last year.

The underlying inflation rate in September stood at 2.2 percent year-on-year, 0.3 percent higher than that of August, stoking inflationary fears about the months ahead.

A substantial increase was seen in prices for electricity, gas and water, up 16.4 percent compared with the same period last year. Food and housing prices jumped 5.2 percent and 1.7 percent respectively, while prices for durable goods declined 3 percent.

For the first nine months, CPI was 2.3 percent higher than the corresponding period in 2009.

"Underlying consumer price inflation edged up further in September," a government spokesman said, pointing to an increase in both "local" and "external" prices. Wages and private rents continued to rise in tandem with the economic recovery, whereas global food prices also continued their upward march , driving up import prices, the spokesman said.

Inflationary pressures are likely to mount, particularly "if the local economy maintains brisk growth and if import prices remain elevated", the spokesman added. However, hefty productivity growth will help mitigate domestic price pressures to some extent.

Irina Fan, senior economist at Hang Seng Bank, forecast a 2.5-3 percent CPI rise for the remainder of 2010.

"We expect food prices to peak and private housing (prices) to remain at high levels in the coming months," said Fan.

For the full year, Fan predicted a "mild" inflation rate of 2.2 percent with government measures likely to be unveiled later this year in order to relieve inflationary pressure.

However, Fan warned against a further weakening of the US dollar, which would not only push up import prices further, but may also lead to a worrisome inflation rate of 3.7 percent in 2011.

China Daily

(HK Edition 10/22/2010 page2)