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Slow Rebound in Price Level Predicted for Second Half
The analysis from Price Section of State Development Planning Committee (SDPC) indicates that prices will see a rebound in the second half. The consumer price index is expected to go from a negative to a positive and rise about 1%, but the possibility of price fluctuations can not be ruled out.
Two characteristics are evident in China's price trends during the first half. First, the general price level continued to rebound. Second, the general price level fluctuated due to seasonal factors and the vacation economy.
The SDPC analysis argues that the rebound will be the guiding direction of prices in the second half. The reason is as follows: because the government continues to implement the policy of expanding domestic demand and developing the West, the investment capability and investment expectations will gradually rise. The investment demand for the second half is expected to maintain fast growth. Due to the improvement of the overall economic situation, the workers' income will grow steadily, new consumer hotspots have emerged as consumer spending continues to increase. The government continues to lower the prices of some basic products and services, this will also push up the consumer price index. As the gap between domestic price and foreign price narrows, the rebound in prices for large commodities in international market will also alleviate the pressure on lowering prices for some domestic products.
At the same time, the analysis points out that despite positive changes in aggregate price level, the prices have yet to spontaneously rebound. The foundation for a rebound in prices is not solid. So, the intensity of the price rebound will not be very strong.
Due to the slow developments in investment system reform, it will be difficult to reverse the sluggish investment in the short-term. The income gap is widening and the polarization of the consumer structure needs to be rectified. It's difficult to achieve a breakthrough in the developing rural market in the short-term. Besides, China's entry into the WTO will also be a shock to the Chinese market. All these factors show that insufficient demand is still the main problem hindering the rebound in China's aggregate price level.
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