Rising grain prices in China will contribute to a rise of 2.5 percent in the country's consumer price index (CPI) in 2007, a steep rise on the 1.4 percent predicted for 2006, said Qi Jingmei, an expert with the State Information Center.

Grain prices will grow six percent in 2007, outpacing last year's rise and becoming the major contributor to price hikes in 2007.

To restrain price hikes, China released 4.3 billion kilograms of grain reserves onto the market during November and December, but grain prices will not fall until new crops are harvested in the first half of 2007, said Qi.

Price rises for farming materials -- including fertilizers, pesticides and diesel oil-- are expected to drive up farming costs in 2007.

It is difficult for China to raise grain output as the country's sown acreage is shrinking, she said.

Price rises for cooking oil may continue because China mainly relies on imported cooking oil and does not have enough oil-bearing crops to be able to regulate prices, she said.

China's CPI reached 1.9 percent in November 2006, the highest monthly rise of the year, as a result of grain price rises in Beijing, Guangdong and Shandong in October.

Qi said flour prices went up partly because a severe drought in major flour-producing countries reduced global output by five to seven percent and partly because Chinese farmers held onto stocks in the expectation of higher prices.

The price of cooking oil increased as the price of transgenic soy rose on the international futures market, while corn prices were pushed up by the bright prospects for the alternative energy industry, which uses corn to make ethanol.

Qi predicts factory prices of industrial products will rise 3.2 percent in 2007, which is 0.3 percentage point higher than 2006, while prices of energy and raw materials will increase 6.7 percent, a year-on-year rise of 0.4 percentage points.

China will continue to devour energy resources and raw materials in 2007 as the economy continues to grow rapidly, she said.

Source: Xinhua