The consumer price index (CPI), Chinese policy-makers' key inflation gauge, entered positive territory in January for the first time in 15 months.

For the first two months, the CPI rose year-on-year 0.3 per cent, the bureau said.

The rise in CPI or the ease in deflationary pressure was partly due to the surging oil prices resulting from a looming war in Iraq, said Niu Li, a senior economist with the State Information Centre.

The statistics bureau did not give figures for oil prices in February.

But it said the price for petrol soared year-on-year 30.6 per cent in January, while that of diesel surged 31.9 per cent.

The possible war would push oil prices as high as US$60 per barrel from the current price of over US$30, he said.

"The rise in CPI was also attributable to the central People's Bank of China's move to boost money supply in recent months," Niu said, adding that this policy tool would remain pivotal in the months ahead.

The central bank has said it would boost both broad money supply (M2) and narrower money supply (M1) by 16 per cent this year.

M2 was up 18.1 per cent at the end of February from the previous year.

Zhang Liqun, a senior research fellow at the Development Research Centre under the State Council, said the rise in CPI suggested that the booming local and overseas demand helped balance overall supply and demand.

The government's efforts to cut over-production and increase the capacity for new products also contributed to the improvement, he said.

"The rise in CPI was a piece of good news for China's economic development, because the decline in CPI, which resulted from industrial over-capacity and consumers' reluctance to spend, was threatening corporate earnings," Niu said.

Qi Jingmei, another senior economist at the State Information Centre, said the deflationary pressure would continue to ease this year, but consumer prices will remain at a low level.

The national economy will continue to grow at a higher rate this year, which is close to last year's 8 per cent, Qi said. "This plays an active role in the CPI pick-up."

The central government has already set 1 per cent growth goal for the CPI in 2003, she said.

"To achieve this goal, governments at all levels are likely to take a series of measures to intervene on consumer prices, because they still have the right to control some of the consumption items which closely impact people's daily lives," she said.

According to Qi, the strong growth of industrial production will continue this year, because of the country's fast growing economy, the improvement of industrial companies' economic efficiency and excellent export prospects.

"This will demand a lot of energy and raw materials, which are beneficial for the pick-up of CPI," Qi said.

Meanwhile, the consumer goods market, which is expected to enjoy a number of favourable factors, such as rising incomes and higher levels of consumption, will grow apace, she said.

But all three experts agreed that the CPI could not grow by a large margin, because of a number of factors.

In particular, said Niu the fact that, "no China-made products are in short supply."

(China Daily March 15, 2003)