How to See Decline in Price Increase

According to statistics released today by the National Bureau of Statistics (NBS), this July the CPI grew by 6.3% year-on-year. Accumulated CPI growth from January to July was 7.7% year-on-year. When interviewed by news reporters, Lu Zhongyuan, Deputy Director of the Development Research Center of the State Council (DRC) explained that both numbers have dropped, which seems to indicate a declining trend in the price increase and an initial success of measures controlling the continuous price increase.

Lu Zhongyuan analyzed the reasons for the downward trend in the price increase. First of all, central macro-controls beginning last year have been effective. In terms of overall strategy, measures preventing structural inflation from turning into overall inflation have been well implemented; and tight currency strategies have effectively controlled the excessively rapid growth of the credit quota. In addition, in order to prevent an excessively increased demand, increased investment has flowed steadily into fixed assets this year; and without taking into account investment prices, this year's is equivalent to last year's.

The situation as a whole is favorable for the steady fall of the CPI. Since last year, the central government has implemented a range of strategies around the production of agricultural and sideline products, such as subsidies for fertilized sows, direct subsidies to grain farmers for producing grain, and subsidies for growing superior seed varieties. Strategies like these have been playing a positive part in motivating farmers and increasing the supply of agricultural and sideline products. In a little over a year, the market supply has been improved.

NBS statistics imply that this July, among the eight types of CPI-involved commodities remained, the prices of five increased and those of three dropped. Food prices increased by 14.4% year-on-year and the prices of tobacco, alcoholic drinks and daily necessities increased 3.1% year-on-year. Clothing prices dropped 1.4% year-on-year. Prices of household appliances and maintenance services have increased by 3.1% year-on-year. The cost of medical care and personal goods has increased by 3.1% year-on-year. Prices of transportation and telecommunication have dropped by 0.3% year-on-year. Prices of goods and services involving entertainment, education and culture have dropped by 0.9% year-on-year. Housing prices increased by 7.7% year-on-year.

As he analyzed the price trend for the second half of the year, Lu told this reporter: Based on model analysis at the beginning of the year, our conclusion is that this year's prices are going to be high for the first half year and low for the second. Up until now our judgment remains the same. From a statistics perspective, due to the significant carryover effect last year and new factors for price increase such as low temperature, heavy rain and snow, earthquakes and other natural disasters, it was not unexpected that prices would remain high for the first half year.

The carryover factor is going to be weaker in the second half year; and the supply of agricultural and sideline products is going to be improved, which will cause the CPI to drop monthly and stabilize. Lu also emphasized that during his recent research and study in other provinces and cities local officials had mentioned a sufficient market supply.

This seems to suggest a solid materialistic foundation since the reform and opening up policy 30 years ago; and that we have eliminated inflation caused by a supply shortage. Therefore, in spite of various difficulties we are facing in terms of controlling inflation in international and domestic markets, we are confident in maintaining steady prices all over the country.