Drought ‘won’t cause inflation’

China's lingering drought since July will contribute little to the country's inflation in August, experts predicted Sunday, seeking to ease public concerns that the drought might send prices of farm produce soaring.

China's consumer price index (CPI) saw 2.7 percent year-on-year growth in July, which is below the central government's full-year growth target of 3.5 percent, but still 0.1 percent higher than June, the National Bureau of Statistics (NBS) said Friday.

The large drought in the southern part of China was only partly behind the slight month-on-month CPI bump in July, analysts said, ascribing the spike mainly to rising pork prices during the month.

"The drought has slightly pushed up the CPI in July," Zuo Xiaolei, chief economist of Galaxy Securities Co, was quoted by Xinhua News Agency as saying Friday, adding however, rising prices for fresh vegetables and fruit are other drivers for inflation.

Although vegetables and fruit accounted for only a small percentage of data calculations for CPI growth, their prices saw a substantial rise in July driving up the CPI reading.

Prices for fruit, which witnessed 7.3 percent year-on-year growth in July, contributed to a 0.14 percentage point growth for CPI, while prices for meat, which rose by 5.9 percent year-on-year in July, have pushed up CPI growth by 0.42 percentage points, according to the NBS.

"Rising meat prices, especially for pork, was the major cause," Wang Jun, deputy director of the Consulting Research Department at the China Center for International Economic Exchanges (CCIEE). a government think tank, told the Global Times Sunday.

The price for pork, which grew by 3 percent in July, was far beyond industry watchers' expectations, Wang said.

Pork price hikes are expected to continue as the main driver of CPI inflation in August, according to Wang, who believes the drought will "have a small impact on CPI growth in August."

But there are also concerns that output of farm produce such as rice in the southern part of China will be seriously impacted causing price fluctuations, according to local media reports.

Helping ease such fears, Li Guoxiang, a professor at the Chinese Academy of Social Sciences, was quoted by China National Radio as saying, "the reduction of rice output in some local areas will not impact rice prices nationwide as the country could release rice it has in storage if necessary."

The drought has caused serious losses of 12.21 billion yuan ($1.99 billion) by August 1, according to a report released by the Ministry of Civil Affairs.

It also announced that 27.11 million people living in 11 provincial areas in China were affected.

"The drought's impact on the CPI growth in August will be stable compared with July as the hardest time for the agricultural sector is yet to come," Wang Yiming, deputy director of the Macroeconomic Research Institute at the National Development and Reform Commission (NDRC). told the Global Times Sunday.