China's 2007 Inflation to Hit 4.2%

Price reforms on water, power and gas will be launched within next year.

Well above a government target, China's inflation in 2007 is expected to hit 4.2%, due to soaring food prices, the Asian Development Bank said on Sept. 17.

"The net effect of the higher-than-expected food prices has led to a revision in (China's) full-year inflation forecast to 4.2% from 1.8%," according to an update of its 2007 Asian economic outlook.

It also raised the forecast for next year to 3.8% from 2.2%, as price reforms in the state-controlled public utility sector are likely to help keep overall inflation high even if food prices ease. "Reforms on prices of goods such as water, power and gas are likely to be launched gradually next year with the ease of food prices, keeping relevant prices at a fairly high level," said Zhuang Jian, the bank's senior economist. The government has set a 3% full-year inflation target.

However, China's consumer price index rose by 6.5% in August, the highest rate in more than a decade, prompting the central bank to raise interest rates for the fifth time this year on Sept. 14. Inflation was led by an 18.2% rise in food prices amid soaring world grain prices and a swine disease outbreak in China.

Copyright Agence France-Presse, 2007

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