The National Bureau of Statistics (NBS) said Tuesday that grain prices continued their upward trend in February, with wheat, corn and soybeans rising by 19.9, 21.5 and 31.4 percent, respectively, on a year-on-year basis, all faster than the pace recorded in the previous month.

Cotton prices jumped 41.7 percent from a year earlier.

The persistent price hikes in cotton resulted from a widening shortage of supply, the bureau said, as factors like unfavorable weather conditions reduced output while demand continued to surge on the rosy prospects for textile exports.

Prices in vegetables and fruits dropped overall, with 2004 supplies growing gradually as the weather gets warmer and consumption abating after the Lunar New Year.

Also yesterday, the NBS said that industrial output grew 23.2 percent in February. The rise in the first two months was reported at 16.6 percent, which compares to an average of 17.0 percent last year.

"The situation is similar to what we expected, and is just normal," said Zhang Liqun, a senior analyst with the Development Research Center (DRC), a think-tank under the State Council.

Grain prices are likely to maintain the upward trend that started last year and stabilize when summer grain hits the market, he said. Grain supply is expected to rise owing to greater planting areas.

Accelerating prices in the second half of last year and so far this year have prompted worries about inflation and discussions of an interest rate hike, although central bankers have said they need to keep watching price trends and wait to see the delayed effects of last year's policy moves.

Wang Yuanhong, a senior analyst with the State Information Center, said the prospect of an interest rate hike this year largely depends on whether the consumer price index (CPI), which came in at 3.2 percent in January, maintains its momentum in the coming months.

It could also depend on whether the effects of last year's monetary policy turn out to be strong enough to curb rapid credit growth.

Despite the continued price acceleration in the first two months, Zhang said he expected CPI to stay at around 3 percent this year as growing aggregate supply will cool down prices.

"Supply is growing fairly well," he said, citing the rapid increases in steel output and power generation as well as excess supply of some industrial products.

The prices of grain, which account for about one-third of China's CPI, are also expected to fall later this year as farmers sow more seed in pursuit of greater profit.

"So the rise in grain prices will not last for too long," Zhang said.

The bird flu outbreak still had some effect on poultry prices in February, the bureau said, but the impact is subsiding owing to government measures to help increase supplies.

Prices of live chickens last month fell by 11.1 percent from January, while those for eggs dropped by 5.8 percent, the bureau said.

(China Daily March 17, 2004)