Drought's bang on overall prices limited
By Wang Yanlin |
March 26, 2010, Friday
|
Print Edition
Print Edition
THE severe drought in southwest China may cause a temporary reduction in food output and lead to a price increase of some commodities, but it will have limited impact on overall consumer prices due to sufficient stocks, analysts said.
The drought raging several provinces, including Guizhou, Yunnan and Hunan, has left about 39.1 million hectares of farmland barren as there is no irrigation water. It led to fears about the drought's potential impact on inflation.
Wang Qing, a Morgan Stanley economist, predicted the Consumer Price Index, a main gauge of inflation, would rise 2.6 percent from a year earlier in March, slower than the pace of a 2.7 percent hike in February.
"We have not changed our CPI forecast as softening food inflation is neutralized by the rise in non-food inflation," Wang said yesterday 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 output in the drought-affected area only accounted for 16 percent of the national total.
The inventory-consumption ratio of grain products stood above 40 percent by the end of last year after six consecutive years of good harvests, way above the 18 percent safety benchmark for grain supply set by the United Nations Food and Agriculture Organization.
Zhou Wangjun, an official at the pricing department of the National Development and Reform Commission, also said the disaster would have limited impact on CPI because the commodities affected, such as tobacco leaf, tea, rapeseed and sugar, had very low weight in the basket of consumer prices.
But Liu Yuanchun, an economics professor at Renmin University of China, said the drought, which occurred at the seeding season for early grain, will raise inflationary fears.
According to China News Service, the price of rice is rising in Shanghai and Chongqing because a lot of it was being sent to drought-hit areas.
The drought raging several provinces, including Guizhou, Yunnan and Hunan, has left about 39.1 million hectares of farmland barren as there is no irrigation water. It led to fears about the drought's potential impact on inflation.
Wang Qing, a Morgan Stanley economist, predicted the Consumer Price Index, a main gauge of inflation, would rise 2.6 percent from a year earlier in March, slower than the pace of a 2.7 percent hike in February.
"We have not changed our CPI forecast as softening food inflation is neutralized by the rise in non-food inflation," Wang said yesterday 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 output in the drought-affected area only accounted for 16 percent of the national total.
The inventory-consumption ratio of grain products stood above 40 percent by the end of last year after six consecutive years of good harvests, way above the 18 percent safety benchmark for grain supply set by the United Nations Food and Agriculture Organization.
Zhou Wangjun, an official at the pricing department of the National Development and Reform Commission, also said the disaster would have limited impact on CPI because the commodities affected, such as tobacco leaf, tea, rapeseed and sugar, had very low weight in the basket of consumer prices.
But Liu Yuanchun, an economics professor at Renmin University of China, said the drought, which occurred at the seeding season for early grain, will raise inflationary fears.
According to China News Service, the price of rice is rising in Shanghai and Chongqing because a lot of it was being sent to drought-hit areas.
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