1. General situation

The price level of the year 2003 has risen. The overall consumer price level of the nation has risen by 1.2 percent compared with that of previous year. Price level in the urban area has risen by 0.9 percent, while that in the rural area 1.6 percent (refer to table 1). Among various consumer prices, food has risen by 3.4 percent, service up 2.2 percent, whereas retailing down 0.1 percent. Factory price of industrial products has risen by 2.3 percent. Purchase price of raw materials, fuels and power has risen by 4.8 percent. Price of fixed asset investment has risen by 2.2 percent. Production price of farm products has risen by 4.4 percent, among which corn up 2.3 percent, cotton up 35.3 percent, oil plants up 19.4 percent, and livestock products up 1.8 percent.

Table 1: Rising situation of national consumer price in 2003 compared with 2002

Table 2: Classified Indices of Commodity Retail Price in 2003 (Previous year=100)

2. Ten features of price fluctuation in 2003

Xu Lianzhong in the Monitoring Centre of the National Development and Reform Commission has done a research on the price of 2003. He summarized ten features:

(1) There is a consistent rise in the consumer price, with the price increment mounting obviously till the end of the year.

In China, there is a sustained rise in the general price level of China. The rising range is low at first and high later on. Although the change of general price level relatively lags behind the economic growth, the trend of price is basically in accordance with the increasingly growing economy, especially at the end of the year, the price advancement range widened, which is more in accordance with the economic growth. From January to November, the accumulative consumer price climbed 1.0 percent compared with the same period of previous year, with the rising range up 1.8 percentage points year-on-year. From January to November, each month has seen a consistent rise in consumer price and a climbing rising range. The price increment in September, October and November compared with the corresponding month of the previous year are 1.1 percent, 1.8 percent and 3.0 percent respectively. The widening of price increment at the year-end rarely happened in the past years. The situation of this year shows that the deflation of our country has been obviously alleviated. It is predicted that the consumer price over the whole year has risen by about 1.1 percent, up 1.8 percentage point from the previous year.

(2) Retail price is still falling, but there is an obvious rise at the end of the year.

From January to November, the accumulative retail price has maintained the falling tendency, but the falling range has shrunk compared with the same period of last year. The retail price index of this period has dropped 0.3 percent compared with the same period of last year; the falling range has shrunk 1.1 percentage point. Prices of most commodities has dropped except fuels, jewelries and food, which have relatively big rise in their prices, 9.7 percent, 8.1 percent, and 2.9 percent respectively. Looking into the situation of each month, retail price has shown a rise of 0.2 percent in March, a rise of 0.1 percent in April, and a decline again in the following months. But influenced by the abrupt price jump of grains, edible oil, meat and their products, the price has undergone a rise in October and November, 0.3 percent in October and 1.4 percent in November respectively. The rising range is obvious and has shown distinct characteristic of tendency. There is a prediction that retail price of the whole year would drop by 0.2 percent, with the falling range shrinking 1.1 percentage point from the previous year, but the retail price in 2004 would end the six years’ continuance of declining and show an obvious climbing.

(3) Prices of daily necessities, which lack demand elasticity, have larger rising range than those non-necessities, which have certain demand elasticity. This phenomenon enlarges the gap of living level between different income classes.

Although the general level of price in 2003 has shown a moderate rise, the prices of daily necessities have risen dramatically, and form a distinct tendency. From January to November, food prices have risen by 3.0 percent, among which fresh vegetables up 20.5 percent, meat products up 2.5 percent. Especially in September, October, and November, the price rising range has broadened evidently. The price of meat has risen by 5.1 percent, 8.1 percent, and 12.4 percent in these three months respectively; food has risen by 3.2 percent, 5.1 percent, and 8.1 percent respectively; grains has risen 3.2 percent and 10.8 percent in October and November respectively; eggs have risen by 5.3 percent and 14.4 percent in October and November respectively. However, prices of those non-necessities are still in a low, and stably maintain this tendency. From January to November, home facilities have shown a decline of 2.6 percent in price, transportation and telecommunication equipments down 2.2 percent, clothing down 2.3 percent, and home appliances down 5.9 percent.

(4) Price advancing is greater in the rural area than that in the city, which enlarges the gap between the living standards of countries and cities.

Consumer price in the country has risen by 1.3 percent in this period, while that in the city by 0.8 percent, 0.5 percentage point lower. Only in four categories of CPI，including grain, vegetables, aquatic products and housing, cities are higher than countries; while in all the other categories, prices in countries are higher than the cities. Particularly, entertainment, educational and cultural articles, and service prices climbed by 2.8 percent in the countries, while 0.5 percent in the cities; health care prices up 2.4 percent in the countries, while down 0.2 percent in the cities; meat product prices up 3.5 percent in the countries while 2.0 percent in the cities; fruit prices up 2.4 percent in the countries while 1.7 percent in the cities. Meanwhile, from January to September, per capita dispensable income among urban citizens has grown 9.9 percent in real terms, while per capita cash income has grown 3.8 percent in real terms. Therefore, besides keeping on improving farmers’ income, we should pay great attention to and then strengthen the price management in the countries.

(5) Productive materials have shown a jump in prices, which becomes the potential factor of the general price rise in the latter part of the year.

From January to November, price of productive materials has risen by 7.8 percent compared with the same period of 2002, the rising range up 11-percentage point. The rising ranges are 4.8 percent in January, 6.9 percent in February and 8 percent in March respectively, which shows an accelerating rising tendency. But affected by SARS, productive material prices rise by 7.8 percent in April, 6.1 percent in May and 5.5 percent in June respectively, showing a dropping tendency. However, from July on, the price rising quickens up again, showing a 9.6 percent rise in August, 9.3 percent in September, 9.4 percent in October, and 1.4 percent in November; these are the months with the greatest rising ranges. On a month-on-month basis, there were seven months in which the productive material prices are rising in the first eleven months. The productive material price at the end of November accumulatively climbed 8.7 percent compared with the end of last year. So the rising range of this year is the biggest among past few years, seeing from whatever angles. It is predicted that the rise in the whole year will be around 8 percent, the rising range up 10.7 percentage point compared with the index of last year.

(6) Prices of steel, crude oil, and processed oil have dramatically jumped, which caused shortage of resources.

During the first ten months, factory price of crude oil has risen by 22.7 percent compared with the same period of last year; gasoline up 19.4 percent, kerosene up 19.6 percent and diesel oil up 18.7 percent respectively. At the end of October, the prices of ordinary ware 6.5ф, deformed steel 12ф, medium plate (6cm thick), and hot-roll plate (2.75-3cm thick) have risen by 27 percent, 26 percent, 25 percent and 14 percent respectively. According to the Monitoring Centre of the National Development and Reform Commission, in November, the average price for deformed steel （22 Ｑ235）in 36 medium-and-big cities of China is RMB 3351.72 Yuan per ton, up 892.01 Yuan compared with the beginning of the year, the rising rate being as large as 36.3 percent; ordinary wire （6.5 Ｑ235Ａ）averagely priced RMB 3346.26 Yuan, up 933.91 Yuan from the beginning of the year, the rising rate being 38.7 percent. The rising prices of crude oil and finished oil products are mainly affected by international market; while steel prices are mainly influenced by domestic investment. At present, steel prices are still lower than the price level of 1993, which shows no great discrepancy with international prices. But the relatively broad rising range has also pulled up the prices of productive materials, and therefore affected related industries. For, example, the soaring of steel prices stimulates the investment of steel industries, the expansion of steel smelting scale, and the corresponding climbing of raw material prices. The iron ore price has risen from USD 11.4 per ton at the beginning of the year to the current USD 35 per ton. The price of coke has soared from around 600 Yuan per ton to 1200 to 1300 Yuan. Scrap has soared to 1750 Yuan per ton, pig iron to 2300 to 2400 Yuan, and rolling steel to 2850 to 3000 Yuan per ton. The rising cost prevented the steel price from falling in a short time.

(7) Abrupt advancing of the prices of grain, cotton and edible oil.

In the past few years, total output of grains in China in continuously decreasing, so the resumed soaring price is reasonable. But in September and October, there is an abrupt all-around soaring: the average prices of red wheat, white wheat and mixed wheat have risen by 11.54 percent, 9.13 percent and 9.17 percent respectively in October compared with the same period of last year. Early indica rice and late indica rice has risen by 10.2 percent and 7.04 percent compared with the same period of last year; while soybean up 29.63 percent. From October, cotton price in domestic market soared as blowout, from 14000 Yuan to 18000 Yuan per ton, marking an increase of around 30 percent, which is 5000 Yuan higher than the same period of last year. The cotton procurement market in Sinkiang Autonomous Region, which is the largest in China, has witnessed a price war. The cotton has been devoid completely. This phenomenon is caused mainly by output reduction, but scare and speculation are also important reasons. Farmers could profit from it of course, but more profits are gained by speculators. This situation not only adds to the unnecessary cost of citizens and textile enterprises, but may also mislead farmers with the soaring price. Many experts worry that the price may drop due to enlarged plantation of cotton and soybeans.

(8) The price of service is climbing smoothly, and industrial products of daily use are decreasing continuously, which alleviates the pressure caused by the rise of general price level.

The government has deepened the restructuring of economic system, broken the monopoly in telecommunication, medicine, civil aviation and power industries etc., and strengthened its control over the soaring price in urban public services. All these policies have reduced the price rising range from around 10 percent in the past few years to 2.2 percent during the period from January to November, which greatly alleviated the pressure of price rising. Meanwhile, since supply surpasses demand, prices of many important commodities such auto, home appliances and telecommunication products are declining. The consistent reform and regulatory policies in the medicine market has kept medicine prices declining dramatically. The declining prices of hot commodities, such as cars, home appliances, telecommunication products and medicines, would play a key role in restraining the rising of general price level. From January to November, transportation and telecommunication equipments, home appliances and articles, and clothing have dropped 2.2 percent, 2.6 percent, and 2.3 percent respectively, which alleviated the pressure of rising prices to a great extent.

(9) The factory prices of productive materials have shown certain degree of rise. But different products have different tendency.

Factory price of productive materials have totally risen 3.6 percent during the period from January to November. After April, the rising gradually slowed down. The rising ranges of September, October and November are 2.4 percent, 2.1 percent and 2.7 percent respectively. Within the scope of productive materials, the factory prices of excavating industry have accumulatively risen by as greatly as 13.7 percent during this period. But the rising range is obviously shrinking, the rising ranges are 7.5 percent, 7.0 percent, 6.5 percent, 6.2 percent, 4.3 percent and 4.4 percent in June, July, August, September, October and November respectively, all below 10 percent. Factory prices of raw and processed materials have accumulatively risen by 6.8 percent. Though the rising tendency is very obvious, the rising rate is smoothly decreasing. Factory prices of processing industries are almost stable, except for a slight rise. Through comparison, we may draw the conclusion that among productive materials, middle and upper status products have decreasingly rising prices, while the lower status products have slightly rising prices. This situation may foreshow that the price rising of middle and upper status products would slow down, while the prices of lower status products would speed up rising.

(10) At present, deflation and inflation coexist. Since this year, certain energy sources and raw materials are in shortage, which become the bottleneck for coal, oil, power, and rail transportation. Dramatic price rise in productive materials and daily necessities, excessive investment scale, low-level redundant construction, high-speed increase of currency supply and loans, the strengthening of citizens’ anticipation of rising prices may all be potential reasons for inflation. But on the other hand, there is not sufficient demand in the current economic operation; the three factors, which could pull up the economic growth, are not harmonious; labor supply far surpasses demand, which leads to consistent falling of labor cost and shrinking of production cost for enterprises. Meanwhile, employment becomes more and more serious, affecting citizens in both income and anticipated income, weakening their confidence to consume, and restraining the development of consumption. Agricultural productivity and comparative effectiveness in farm production are very low, which leads to the slow increase of farmers’ income. The establishment of rural market is also very slow. All these factors form the pressure of deflation. Besides, under the background of prevalent superabundance of production capability, ordinary processing industries such as Chinese steel, cement, textiles and machinery have further expanded their scale in the past two years. Once the market has changed, competitors would demand lower and lower prices to make the general price level more miserable; some enterprises may get into extremely difficult circumstances as well. What’s more, as China gradually fulfills its promises for entering into WTO, and lowers its market access, cheap products from abroad such as cars, finished oil, electronic equipments would enter into our domestic market in larger quantity. The general price level would drop accordingly, and make deflation possible.