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Containing Inflation

China's consumer price index (CPI), the main gauge of inflation, surged to an 11 year monthly high of 7.1 percent in January, mainly because of the huge increases in food prices and the worst snow in five decades.

Some analysts estimated the reading, scheduled to be released on Tuesday, may reach more than 8 percent in February. The CPI hit an 11-year high of 4.8 percent last year, well-above the government target of 3 percent.

The CPI target for 2008 was set at 4.8 percent, flat from last year, Premier Wen Jiabao said in the 2008 Government Work Report at the opening session of the country's legislature. He noted the major task of this year's macroeconomic control was to prevent the overall price level from rising rapidly.

To achieve the goal, Wen vowed to boost production, strengthen price monitoring and curb overly rapid price hikes in agricultural production materials.

To tame the surging inflation, China has since last year raised the deposit reserve requirement ratio 11 times and the benchmark interest rates six times. As of January 15, it launched temporary pricing interventions into basic life necessities, including grain, edible oils, meat, eggs, milk and natural gas.

Qin Qingwu, head of the agricultural economics institute under Shandong Provincial Social Science Academy, said a failure to curb the overall price levels and the huge hikes in agricultural production materials would hurt farmers' enthusiasm to grow crops.

"Many of them may leave the land to seek high-paying jobs in cities. That would result in a more severe shortage in agricultural products and thus higher inflationary pressures."

To boost farmers' incomes and bridge the widening rural-urban income gap, the government should steady the prices of production materials and strive to avoid steep price declines of farm produce, the researcher said.

"The government should also raise government subsidies and introduce more incentives to support agriculture and farmers," he added.

According to the Government Work Report, the budget earmarked for agriculture, farmers and rural areas this year was raised to 562.5 billion yuan, 130.7 billion yuan more than in 2007. The report also pledged to boost agricultural incentives and stick to a strict arable land protection policy.

All the pledges have helped to allay farmer Chen's concerns of higher inflation. "They have demonstrated the government's determination to rein in inflation," he said. "I believe the government can finally manage to ease inflation after taking timely and effective measures."