May 7 – China’s policy group, the State Information Center, predicts that inflation rates could ease to 7.5 percent from 8 percent come the second quarter of the year. It cautions that inflationary pressures will remain due to high grain prices and continued investment.

“Seasonal changes and government measures to boost agricultural supplies may cause consumer prices to slide in the second quarter,” reported the State Information Center. “But inflationary pressure is still mounting because of domestic and international factors.”

In February, the consumer price index (CPI) gained 8.7 percent – the highest gain in 12 years. Fluctuations in food prices account for an estimated one-third of China’s consumer price index. The CPI indicates the average price of consumer goods and services purchased by households and is used as a measure of inflation. Last year, rising food prices accounted for 70 percent of inflation.

The center said that the country is facing pressure to increase local grain prices due to a demand-supply gap and agricultural production costs from fertilizer and fuel.

According to China Daily, international agricultural prices increased by 14.6 percent during the first quarter while grain prices have more than tripled to US$1,000 per ton in the past year.

China has been working to maintain domestic rice prices by implementing export bans and agricultural subsidies. Sources speculate how long the government can hold down the price of rice in light of increasing global grain prices and reports of illegal rice exports.

The State Information Center went on to say that investment in China will continue due to rising corporate profits and reshuffled local government officials seeking to attract investment in their region. It says the economy will expand by 10.8 percent in the second quarter, a rise of 0.2 percentage points from the first.