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Quake inflation to be temporary

By Xin Zhiming and Diao Ying (China Daily)
Updated: 2008-06-04 10:25

The recent earthquake will add to China's inflationary pressure as the country is battling to contain rising prices, but the effect will be temporary, said a central bank research report released yesterday.

Meanwhile, the Chinese economy will not suffer a "hard landing" as feared by some economists, making it unnecessary to relax the current tight monetary policy, according to the report compiled by the research unit of the People's Bank of China.

The May 12 earthquake that hit Sichuan and its neighboring regions has killed 69,107 people and caused massive damage, but it would not derail the general trend of the economy toward more stable growth, according to the report.

A worker repairs a road between Dujiangyan and Wenchuan that was destroyed by the quake. The People's Bank of China has said reconstruction in Sichuan will increase growth in fixed-asset investments. Xinhua

"It would push up the growth of fixed-asset investment in the post-quake reconstruction and increase the short-term inflationary pressure," it said.

China's roaring economy is beginning to stabilize, although surging demand for some commodities following last month's disastrous earthquake will add to inflationary pressures, the research report said.

It noted that the value of economic output in the region affected by the disaster is only 0.25 percent of the national total.

The damage to the industrial and agricultural production in the earthquake-hit areas, as well as the demand for food and daily necessities from this region will put new pressure on consumer price. But the report, which cites examples of Japan following major earthquakes, said that the impact of earthquakes on the consumer price index will only be felt in the short term, and there will not be any significant influence in the long run.

But reconstruction is fueling higher demand for cement, steel and other materials and will likely add to inflationary pressures, it said.

"Inflationary pressures remain the biggest risk in the economy. Curbing price rises remains the government's key task," said the report.

Causes for the inflationary pressure include rising raw material costs and food prices. Price of oil and other primary products in the international market is increasing. At home, processed oil and electricity are faced price pressures.

China's inflation rate has hovered around a 12-year high in recent months, with inflation in April at 8.5 percent.

According to the Ministry of Commerce, food prices fell 0.7 percent last week, the eighth straight week of decline. Despite such data and recent forecasts suggesting the rise in the consumer price index in May could be below 8 percent, the report noted a continued need to rein in investment and prevent a rebound in excess lending.