Wen pushes to contain pork prices

Consumer price stability top priority for government, Premier says 

 BEIJING – Premier Wen Jiabao told government departments to take immediate measures to support pork production and increase supplies to prevent a surge in the price of the meat, a key factor pushing up China’s inflation rate.

During a weekend visit to Shaanxi province, Wen said that keeping consumer prices stable and taming inflation remain the government’s top priorities.

The government will not change the direction of its macroeconomic policies,and it will work hard to achieve economic and social development goals, said Wen.

Fast-rising pork prices were a key factor pushing up the consumer price index (CPI) a main gauge of inflation to 6.4 percent in June, a three-year high, the National Bureau of Statistics (NBS) said on Saturday.

“To stabilize pork prices is the government’s unavoidable responsibility” because of pork’s importance in the Chinese diet, said Wen.

According to the NBS, pork prices increased 57.1 percent year-on-year in June. The gain accounted for 1.37 percentage points of the CPI increase.

Pork prices jumped by 11.4 percent month-on-month in June, following a gain of 2.6 percent in May, said the NBS.

Lower pork prices in 2010 drove many farmers to give up breeding pigs, Li Chaoxian, a leader of a small village in Shaanxi province, told Wen, according to the website of the Chinese government, www.gov.cn.

Soaring costs for corn (the main component of pig feed) and labor also drove up pork prices, said Li.

China’s inflation was 5.5 percent in May and 5.3 percent in April.

Premier Wen said in London on June 26 that it will be difficult to keep the full-year inflation rate below 4 percent.

To stabilize consumer prices and drain liquidity, the People’s Bank of China, the central bank, raised one-year benchmark interest rates by 25 basis points effective on July 7. It was the third hike this year.

Further, the central bank has raised the required reserve ratio (RRR) for commercial banks six times in 2011. As a result, many smaller companies are finding it difficult to borrow money.

Some economists argued that tight monetary policies might slow China’s economic growth and the government should be mindful of the risks of a hard landing.

Li Xunlei, an economist at Guotai Junan Securities, said that the CPI is likely to decrease in the second half of this year, “but it depends on how much pork prices can decrease”.

Li predicted that the CPI in July might remain above 6 percent, but it is expected to fall in the fourth quarter.

A research note from Nomura Holdings Inc said that because inflation might stay high in the coming months, the central bank might hike interest rates again in the third quarter, despite signs of a deceleration in the economy. 

Source: China Daily

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