Bumper harvest may ease inflation

Source: Xinhua  |   2008-6-24  |     NEWSPAPER EDITION

THIS summer's grain harvest could greatly help China to ease inflation pressure, Ma Xiaohe, a senior researcher with the National Development and Reform Commission, said yesterday.

The crop is predicted to top 120 million tons this summer, 2.5 million tons more than a year ago, said Agriculture Minister Sun Zhengcai.

Rapeseed output was expected to rise by more than 400,000 tons to 11.85 million tons, ending a three-year decline, according to Sun.

Although China faces some difficulties in securing a grain harvest this autumn, "the effective macro-economic policies and stable grain supplies will slow the consumer price index rise pace," said Ma, vice president of the macroeconomic research academy under the NDRC.

Officials have unveiled measures to encourage planting, as soaring food prices have become the major driver of consumer inflation. The severe winter weather and strong consumption ahead of the Spring Festival had earlier pushed the CPI, the main inflation gauge, to an 11-year high of 8.7 percent in February.

The CPI eased to 7.7 percent in May, as food prices fell 0.1 percent and 1.3 percent, respectively, in April and May, month-on-month. Food prices account for about a third of the CPI in China.

The central government vowed this year to spend 562.5 billion yuan (US$81.9 billion) to support farms and the rural sector, 130.7 billion yuan more than last year.

It decided in March to allocate another 25.25 billion yuan to this year's rural budget, mainly to subsidize farmers' purchase of seeds, diesel, fertilizer and other production materials.

Sun also warned of some negative factors for the autumn crop, including floods, drought, typhoons and pest invasions. Summer crops usually account for about 23 percent of the annual grain output, far less than the autumn output.

Torrential rains in south China in recent weeks have affected more than 43 million people and caused losses of more than 14 billion yuan.

Zhang Yongjun, a senior economist of the State Information Center, said it was uncertain whether there would be higher grain output this year, but prices of meat and chicken would rise more slowly, reducing pressure on the CPI as the year proceeded.

The CPI rise in the second half of this year would slow down by 2 to 3 percentage points and the annual CPI rise would hover between 5 percent and 6 percent, partly due to the sufficient agricultural products supply, said Li Huiyong, a Shanghai's Shenyin & Wanguo Securities senior analyst.