Rising prices for means of production will push up the consumer price index (CPI), policymakers' key inflation gauge during the next few months. Xie Fuzhan, deputy director of the State Council's Development Research Center (DRC), announced the forecast on Wednesday.

Ren Xingzhou, director of the DRC's Institute of Market Economy, said the impact of oil and raw materials price increases on the CPI has already been felt in the first three quarters of 2004. The government has raised domestic oil prices three times since the beginning of the year because of high international oil prices.

"The government is likely to raise domestic oil prices further in the fourth quarter," Ren said.

Coal prices will also stay high as a result of transportation bottlenecks.

Meanwhile, the country is facing mounting pressure to raise the prices for public utilities such as water and electricity. The Beijing local government has already hiked water prices and is ready to jack up those for electricity, according to Ren.

Local governments in other areas also have plans to increase utilities prices.

Ren expects the CPI to climb about 4 percent this year.

Ren said grain prices have been a driving force behind the rise in the CPI in recent months.

Although government efforts to encourage grain production since the beginning of this year have made headway, a gap remains between supply and demand.

Analysts believes that grain output for the year will meet the target of 455 billion kilogram, a rise of 5.8 percent from last year.

However, existing structural and regional problems in grain supply will keep prices elevated.

The DRC expects grain prices to jump about 20 percent in the fourth quarter.

(China Daily November 4, 2004)