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Drought won't hit CPI – analyst
By Wang Yanlin |
March 25, 2010, Thursday
|
Online Edition
Online Edition
THE severe drought in southwest China may cause temporary reduction of food supplies and lead to some price rises, but will have limited influence on overall consumer prices due to sufficient inventory, analysts said.
The drought raging through provinces including Guizhou, Yunnan and Hunan has made about 39.1 million hectares of farmland barren as there is no irrigation water. It led the market to speculate about its potential impact on inflation.
Wang Qing, a Morgan Stanley economist, predicted the Consumer Price Index, a main gauge of inflation, would grow 2.6 percent from a year earlier in March, slower than a 2.7-percent advance in February.
"We have not changed our CPI forecast as softening food inflation is neutralized by rising non-food inflation," Wang said today in a report. "Although the heavy drought has increased the upside risks of headline inflation, we believe the potential impact will be limited."
To back his argument, Wang cited data by the Ministry of Agriculture that grain production in the region affected by the drought only accounted for 16 percent of the national total.
Further, the inventory-consumption ratio of grain products stood above 40 percent by the end of last year after six years' consecutive good harvest, way above the 18 percent benchmark level for grain supply safety set by the United Nation Food and Agriculture Organization.
"In this context, we believe the current inventory level together with proper supply adjustment guided by government should be sufficient to smooth any grain price volatility caused by the drought," Wang said.
The drought raging through provinces including Guizhou, Yunnan and Hunan has made about 39.1 million hectares of farmland barren as there is no irrigation water. It led the market to speculate about its potential impact on inflation.
Wang Qing, a Morgan Stanley economist, predicted the Consumer Price Index, a main gauge of inflation, would grow 2.6 percent from a year earlier in March, slower than a 2.7-percent advance in February.
"We have not changed our CPI forecast as softening food inflation is neutralized by rising non-food inflation," Wang said today in a report. "Although the heavy drought has increased the upside risks of headline inflation, we believe the potential impact will be limited."
To back his argument, Wang cited data by the Ministry of Agriculture that grain production in the region affected by the drought only accounted for 16 percent of the national total.
Further, the inventory-consumption ratio of grain products stood above 40 percent by the end of last year after six years' consecutive good harvest, way above the 18 percent benchmark level for grain supply safety set by the United Nation Food and Agriculture Organization.
"In this context, we believe the current inventory level together with proper supply adjustment guided by government should be sufficient to smooth any grain price volatility caused by the drought," Wang said.
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