Higher food prices and the increasing cost of service items increased China's consumer prices by 1.1 percent in September compared with last year, the National Bureau of Statistics said yesterday.

Urban consumer prices registered a year-on-year growth of 0.9 percent, while those in rural areas rose 1.6 percent, the bureau said.

Food prices increased year-on-year by 3.2 percent in September, while service items rose by 2.3 percent, it said.

For the first nine months, the consumer price index (CPI), policy-makers' key inflation gauge, rose year-on-year by 0.7 percent. Bureau Deputy Director Qiu Xiaohua said the CPI rise was stable.

"Undoubtedly, the CPI situation has connections with the recovery of the overall demand since the beginning of this year," Qiu said. "The situation also has connections with the frequent outbreak of natural disasters such as floods and drought."

Qi Jingmei, a senior economist with the State Information Center, said the CPI rise suggests the country's economy has turned for the better.

"Booming local and overseas demand help balance overall supply and demand," Qi said.

Niu Li, another senior economist with the center, said the CPI rise was mainly because of the rapid money supply in the past few months.

The People's Bank of China has taken a series of measures to withdraw money from the market, but broad money supply (M2) rose year-on-year by 20.7 percent at the end of September and narrower money supply (M1) rose 18.5 percent.

Wang Zhao, a researcher at the Development Research Center under the State Council, said the CPI rise was also due to higher oil prices on the international market.

"The price rise was a piece of good news for China's economic development, because a fall in prices would threaten corporate earnings," Wang said.

The three economists agreed the CPI will continue to be kept in a positive area in the coming months.

"The national economy will continue to grow at a higher rate this year, which will play an active role in the price rise," Qi said.

The strong growth of industrial production will continue, because of the country's fast growing economy, the improvement of industrial companies' economic efficiency and excellent export prospects, she said.

"This will boost demand for energy and raw materials, which is beneficial for price rises," she said.

But Wang said commodity prices could not grow by a large margin, because of a number of factors.

"No China-made products falls short of supply," he said.

Also, there were no major factors which could further fuel CPI growth, he said.

Scientific progress and the ongoing industrial restructuring will further drag down prices, she said. The CPI is expected to rise by 1 to 1.2 percent in 2003, Qi predicted.

(China Daily October 22, 2003)