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China's consumer prices rose 3.2 per cent in January compared with the same month last year, the National Bureau of Statistics said on Friday.
January's consumer price index (CPI), policy-makers' key inflation gauge, remained at the same level as last December.
However, December's CPI was the highest since April 1997, when it was also up a year-on-year 3.2 per cent.
Last year's CPI rose 1.2 per cent compared with the previous year.
Urban consumer prices rose a year-on-year 2.5 per cent in January, while that in rural areas rose 4.4 per cent.
Qi Jingmei, a senior economist with the State Information Centre, said the higher CPI in January was mainly because of soaring food prices.
The cost of food rose a year-on-year 8 per cent in the month, the statistics bureau said.
Higher prices for services, which rose a year-on-year 2.9 per cent in January, and higher prices for consumer goods, which rose 3.2 per cent, also contributed to the CPI rise in January, Qi said.
The constantly increasing CPI as well as the hikes in money supply and loans will put pressure on the government to raise the interest rate, she said.
The central People's Bank of China said on Friday that the country's broad money supply (M2) rose a year-on-year 18.1 per cent in January.
Loans made by the country's financial institutions including foreign financial institutions reached 17.27 trillion yuan (US$2.1 trillion) in the month, a year-on-year increase of 20.6 per cent.
The benchmark one-year bank deposit rate is set at 1.98 per cent.
"For this year, the country's CPI is expected to increase a year-on-year 3.2 per cent," Qi said.
Since mid-October, China witnessed rapid price increases on its farm products.
"The price for farm products, if they do not go up further and maintain current levels, would signal significant growth during the first several months of this year compared with a year ago," Qi said.
"This will undoubtedly push the overall consumer price higher," Qi said, explaining that higher grain prices result in higher prices for food. And this would also indirectly lead to higher costs for other commodities.
The nation's economy, which is predicted to grow by more than 8 per cent this year, will play an active role in the consumer price rise, she said.
A boost in the consumer goods market and more efficient companies could also lead to higher prices for consumers, the economist explained.
"But this does not necessarily mean that China will face inflation," Qi said.
Zhang Liqun, a senior researcher with the State Council's Development Research Centre, agreed with Qi, adding the country's CPI is not expected to rise by more than 5 per cent this year.
The reason for this is that an increased supply capacity will restrict consumer prices from rising too much, he said.
Compared with 1992-93, the country's supply capacity is strong enough to meet market demand, Zhang said.
Inflation in 1993-95 was mainly triggered by the lack of basic products due to a weak agricultural and industrial base, he said.
At that time, the country fell short on the supply of food, raw materials and electricity, and prices climbed quickly.
(China Daily February 14, 2004)
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