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Despite worries about possible inflation, experts say China should only expect a "moderate'' growth in its consumer prices this year, due to the rise in grain prices since last October.

Qi Jingmei, a senior economist with the State Information Centre, said the country's consumer price index, a key inflation gauge, is likely to rise 3 per cent this year.

Zhang Liqun, a senior researcher with the State Council's Development Research Centre, said the country's CPI could grow as high as 5 per cent during the first quarter.

The growth was much faster than the 1.5 to 2 per cent rate predicted at the end of last year.

"This does not necessarily mean that China will face inflation,'' the two agreed. "It should be a moderate rate.''

Since mid-October, China witnessed rapid price rises of its farm products across the nation.

"The price for farm products, if they do not go up further and maintain the current level, would mean a significant growth during the first several months compared with a year ago,'' Zhang said.

He explained that the price for farm products were low before mid-October last year.

"This will undoubtedly push the overall consumer price higher,'' Qi said.

"A higher grain price will result in a higher food price, which contributes about 30 per cent to the consumer price index (CPI),'' she said.

The higher food prices would also lead to higher costs for other commodities indirectly, resulting price rises for these commodities, she said.

"The nation's economy, which is predicted to grow more than 8 per cent this year, will play an active role in the consumer price rise,'' she said.

Other factors including a pick-up in the consumer goods market and improved economic efficiency of companies are also beneficial for the rise in consumer prices, Qi said.

However, Zhang said the country's CPI could not rise to more than 5 per cent.

"The increased supply capacity will restrict the consumer price from rising too much,'' he said.

Compared with 1992 and 1993, the country's supply capacity is strong enough to meet the market demand, Zhang said.

The inflation between 1993 and 1995 was mainly triggered by the lack of basic products due to a weak agricultural and industrial foundation, he said.

At that time, the country fell short in supplies of food, raw materials and electrical power, and prices rose quickly.

Since the mid-1990s, the country's economy has walked out of the supply bottleneck, he said.

An investigation by the Ministry of Commerce on the supply and demand situation of the country's 600 major products suggests that none are falling short of supply.

"More importantly, the foundation for supply growth has improved,'' Zhang said.

The country is capable of providing sufficient funds, labour and technology to increase supply capacity, he said.

Zhang noted that the present grain price rises were mainly because of reduced production, which resulted from the adjustment of the grain structure as well as natural disasters such as flooding and droughts.

The higher grain prices will push farmers to grow more grain, he said.

Also, the government will not take a laissez-faire attitude toward the trend of price hikes.

Vice-Minister Li Shenglin of the National Development and Reform Commission said China has established a nationwide rural price supervision system.

The government will also curb the rising cost of basic facilities, said an official with Li's commission.

"No price-hike policy in relation to water and electricity will be in effect for at least the first quarter of this year,'' he said.

As the nation's economy opens up, prices for more goods and services become dependent on market forces. But essential necessities, such as gas, crude oil and electricity, are priced and supervised by the government.

At the end of last year, many people believed the government would increase the price for water, gas and electricity to reduce waste and curb growing shortages.

Although it did not go through with planned price hikes, Zhang's commission announced a jump in the cost of coal-produced electricity in late December.

As of January 1, electricity price would jump by 0.7 fen (0.08 US cents) per kilowatt hour.

Earlier, the government had also planned a price hike of up to 12 yuan (US$1.40) per ton for coal used for power generation.

But now, the government will try to keep prices stable, Zhang said.

China's CPI rose a year-on-year 3 per cent in last November, the highest monthly hike since April 1997, when CPI rose 3.2 per cent.

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