March 1, 2021

China Inflation Rises Less Than in Previous Month

The government’s Consumer Price Index rose by 6.2 percent over the previous August, according to the National Board of Statistics. That compares with a 6.5 percent rise in July. Producer prices were up 7.3 percent, slightly less than 7.5 percent jump in July.

Analysts cautioned, however, that inflation was likely to remain a long-term problem in a fast-growing economy in which middle-class demand for food and goods was rising and once-cheap manual labor was becoming more expensive.

Taming inflation has been the top economic priority of China’s leaders, who fear that high prices could fuel social unrest. Evidence that price increases are slowing down gives them some leeway to address the impact on of economic problems in the West, which are likely to reduce the exports on which China’s growth depends.

Inflation is “down but not out,” Alistair Thornton, a China analyst at IHS Global Insight, wrote in an early analysis of the state figures. Part of the decrease, he said, came from easing price increases for pork, one of the nation’s staple foods.

Food prices, which account for about a third of the Consumer Price Index, rose by 13.4 percent that month when compared with the previous year. But inflation in goods other than food actually rose last month to 3 percent, a 10-year high , he said.

“A lot of people have made the argument that China’s inflation is not concerning because it’s all food prices, all weather and supply shocks — bad harvests and the like,” Mr. Thornton said. “But the fact that non-food inflation is the highest it’s been in over a decade indicates there is something significant there.”

The government has been aggressively working to tame inflation for much of the year. China’s central bank, the People’s Bank of China, has repeatedly raised interest rates and bank reserve requirements to drain excess money out of the system, and restricted purchases of property to dampen land speculation. the latest figures show that new-home prices dropped or remained steady compared to June in 31 of 70 major cities, and average residential land prices declined nine percent month-on-month.

The government originally pledged to keep the annual inflation rate under four percent in 2011, but Premier Wen Jiabao, the top economic policy maker, more recently said the hope now is to keep it beneath five percent.

Signs of moderating inflation may enable the government to turn its attention to stimulating domestic demand, a move Western economic policymakers have urged China to make for years, J.P. Morgan wrote in a note on the latest figures.

“Support for domestic demand will come from the consumer side through employment growth, rising wages, and a higher individual income tax threshold and from the investment side through social infrastructure projects, such as the affordable housing program, water infrastructure and agricultural investments,” the firm’s China expert, Jing Ulrich, wrote.

A shift to domestic demand would help China’s economy weather any drop in exports related to slowing demand for good in the economically sapped West.

China’s stock markets rose in early trading, apparently in response to the better news on inflation.

Article source:

Speak Your Mind