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China Economic Insight Series (29) : Inflation in China : A Growing Risk in 2010
2010-03-09DONG,Ai-Ying
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요약
Inflation in China : A Growing Risk in 2010
Confidence in China's economic growth is spreading and policy makers are shifting their attention to inflation, which is a risk for China's economy in 2010 and the main factor in determining monetary policy.
China's CPI turned to positive YoY growth in November after 10 months of decline and
reached 1.9% in December before slowing to 1.5% in January.
The slowdown in January was largely due to a 1.5%p decline in YoY food price increases and a base effect resulting from the lunar new year falling in January in 2009. As a result, China's CPI growth could accelerate in February.
Key factors affecting inflation in 2010 : Demand factors include ① a rapid increase in
the money supply and ② a faster than expected recovery in exports that will help reduce excess supply that has been limiting inflation. Supply factors include ① rising international raw material and commodity prices that will drive up domestic non-food inflation and ② a continued rise in food prices resulting form the government's pricing policies based on agricultural conditions.
Based only on liquidity, inflation could reach 7~8% in 2010, as it did in 2007~08. However, taking into account domestic and international fundamentals, aggregate demand (and foreign demand in particular) is unlikely to rebound to pre-crisis levels. As a result, inflation is likely to be limited to 3~4%.
However, there is still an upside risk for inflation, and in light of the base effect, CPI growth may be high in H1 and slow in H2 in 2010.
Based on past experience, the government is likely to target inflation of 3~4% and is
acting preemptively based on expectations for inflation. The government's tightening policies and preemptive actions to control inflation make a sharp rise in inflation unlikely.
In the near term, inflation will be an increasingly important factor in the government's
policies, and a shift in monetary policy is possible in March or April after Q1 economic
indicators are released and the "NPC" where key policies are announced, is held.
Confidence in China's economic growth is spreading and policy makers are shifting their attention to inflation, which is a risk for China's economy in 2010 and the main factor in determining monetary policy.
China's CPI turned to positive YoY growth in November after 10 months of decline and
reached 1.9% in December before slowing to 1.5% in January.
The slowdown in January was largely due to a 1.5%p decline in YoY food price increases and a base effect resulting from the lunar new year falling in January in 2009. As a result, China's CPI growth could accelerate in February.
Key factors affecting inflation in 2010 : Demand factors include ① a rapid increase in
the money supply and ② a faster than expected recovery in exports that will help reduce excess supply that has been limiting inflation. Supply factors include ① rising international raw material and commodity prices that will drive up domestic non-food inflation and ② a continued rise in food prices resulting form the government's pricing policies based on agricultural conditions.
Based only on liquidity, inflation could reach 7~8% in 2010, as it did in 2007~08. However, taking into account domestic and international fundamentals, aggregate demand (and foreign demand in particular) is unlikely to rebound to pre-crisis levels. As a result, inflation is likely to be limited to 3~4%.
However, there is still an upside risk for inflation, and in light of the base effect, CPI growth may be high in H1 and slow in H2 in 2010.
Based on past experience, the government is likely to target inflation of 3~4% and is
acting preemptively based on expectations for inflation. The government's tightening policies and preemptive actions to control inflation make a sharp rise in inflation unlikely.
In the near term, inflation will be an increasingly important factor in the government's
policies, and a shift in monetary policy is possible in March or April after Q1 economic
indicators are released and the "NPC" where key policies are announced, is held.