From: “China Daily”

Price pressures are being passed on from producers to the consumers. The nation’s consumer price index (CPI) growth could reach the year’s highest of five percent in July, the Shanghai Securities Journal reported Friday.

According to the report, three major factors have contributed to the CPI growth. They are fast growth in currency supply, last year’s low CPI figure, and the latest surge in food prices.

The report found that rapid growth of currency supply had created a loose monetary environment for price increases.

According to the report, currency supply has a lagged effect on prices. The growth of M1, which mainly includes currency held by the public, reached its peak in February this year, so the CPI will probably respond around half a year later. That may create a CPI peak in July or August.

Meanwhile, CPI went down between May and July last year due to lower food prices. But the index regained strength after April this year and formed an ascending trend, which could last two or three months. These factors combined may contribute to rapid CPI growth around July.

According to the report, rising prices of agricultural products have contributed to CPI growth. Although eggs and aquatic products were cheaper in July, grains, meat, edible oil, and fruit were more expensive. Vegetable prices also followed suit due to recent flooding in many areas.

Therefore, the year’s highest CPI, possibly as high as five percent, may appear in July, and the second highest may come in August before it falls below three percent by the end of the year. Meanwhile, due to the hike in grain prices this year, CPI growth for the whole year may reach 3.5 to 3.6 percent, slightly higher than previous expectations, according to the report.

Copyright Fund China 2009.

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