The rise of China's consumer price index (CPI) is likely to be kept under four percent this year, as food price hikes will be quickly restrained in the second half of the year, according to Yao Jingyuan, chief economist of the National Bureau of Statistics (NBS).

Yao said the inflation of food prices have only resulted from an "adjustment within the nation's economical structure".

"Despite the price rises of pork and a few other food products, current overall supply far exceeds total demand and consumer prices are not likely to keep rising," he said.

A report from the Ministry of Commerce suggested that the price growth will slow down in the second half.

"The fluctuation in food price, caused by a rise in costs, seasonal factors, natural disasters and other factors, is quite common," said the report.

Li Xiaochao, NBS spokesman, said that the rising international grain price and the rise in grain demand had driven up domestic grain prices, which, in turn, led to recent food price hikes.

Although rising prices for foodstuffs - including grain, meat, poultry and eggs - pushed China's CPI up to a 28-month high of 4.4 percent in June and 3.2 percent in the first half, the country's core CPI, with foodstuff and energy prices deducted, rose only 0.9 percent in the first half, Li said.

Chinese farmers will benefit from the food price hikes, as their income will increase as the prices climb, said Lu Zhongyuan, director of the Macroeconomic Research Institute of the Development Research Center of the State Council.

However, Zuo Xiaolei, an analyst with Galaxy Securities, is concerned that the price hikes are only evident in the distribution process of goods, instead of when grain and meat are procured from farmers, and that, in actual fact, farmers would see no benefits at all.

Zuo also said that the price mark-up in the process after production before it reaches the end user would definitely lead to inflation.

China's food price has surged 7.6 percent in the first half, while grain is up 6.4 percent and eggs up 27.9 percent. The pork price rose 70 percent over the same period last year, according to NBS figures.

Liang Hong, chief economist with Goldman Sachs (Asia) China, predicted that China's CPI would see more than five-percent growth in July, if no firm monetary policies are taken.

(Xinhua News Agency August 6, 2007)