BEIJING, April 21 (Xinhuanet) -- China's consumer price index (CPI)rose 2.8 percent year-on-year in the first quarter, 2.3 percentage points higher than in the same period last year, which experts consider a result of expanding investment that will further influence the country's economic performance.

    Last January witnessed an end to a 14-month downslide of China's CPI, but the index had kept rising with growth rates under 1 percent until the third quarter last year. It was the rise in prices of grain and other farm produce last September and October that drove an overall hike of food prices.

    Liu Wenhua, an official with the National Bureau of Statistics (NBS), said the price increase in farm produce was no doubt good news to farmers who suffered falling output and creeping income growth.

    Analysts with the Development Research Center of the State Council consider the rise in both production prices and consumer prices since last year shows China is stepping out of the deflation shadow and is likely to trigger further economic growth.

    They deem the current price increase still moderate, saying it will help promote healthy economic development by leading enterprises to more marketable and profitable trades and products to balance supply and demand.

    Though the markets remain calm, the rapid CPI increase is showing its pressure on catering, auto-making, electrical household appliance manufacturing and clothing, which may be forced to lower prices due to insufficient demand or oversupply.

    Cui Huachang, boss of a private hotel in Qianjiang City, central China's Hubei Province, complained of swelling expenditure on employees' daily consumption.

    "The rice price has risen from 1.4 yuan per kg last year to the current 3 yuan per kg. I have to pay 1,500 yuan (181 US dollars) more each month for my employees who consume over 30 kg of rice every day," Cui said.

    "Business has become more difficult for us, as prices for hotels and catering services have seen no growth," he said.

    The price surge of steel and other raw materials have also slashed profits in related industries, as witnessed by the falling prices of automobiles and household appliances.

    Experts regard it necessary for China to tighten macro-economic control to curb overheated investment in steel, cement, electrolytic aluminum and electric power, which will help reduce the prices of materials and equipment needed in these industries.

     Meanwhile, statistics from the NBS show that urban CPI rose 2.1percent in the first three months, a sharp contrast to the 4 percent rise in rural areas, which is attributed to the slack supervision over rural markets.

    Resulting from the fast increase in investment since the end of 2002, the price surge hasn't spread to the labor market. In addition, the income gap between urban dwellers and rural residents is also broadening, discouraging consumption demands of the low and middle income strata who compose most of China's population.

    Xu Lianzhong, an official with the State Development and Reform Commission (SDRC), suggested the government improve subsidies to help needy families through continuous food price rises and intensify supervision of rural markets, especially medical charges and education fees.

    "While restraining investment, the country should also take measures to stimulate the public's consumption of products to alleviate oversupply," he said.

     Liu Wenhua reminded governments at various levels to be cautious in carrying out any decision to regulate prices, saying it might cause social panic when prices of farm produce and major production means remain high. Enditem