Analysts believe that, even as other central banks around the world tighten policy, the People’s Bank of China (PBOC) may be able to loosen policy to help the slowing economy.
“Concerns about inflation are unlikely to deter the (People’s Bank of China) from taking additional policy easing measures,” said Sheana Yue, China Economist at Capital Economics.
“Lower inflation signals poor domestic demand,” said Zhiwei Zhang, Pinpoint Asset Management’s Chief Economist. “Macro policies have shifted in favor of the economy, but it will take time for the effects to be felt.”
Due to rising global energy prices, the Chinese economy, notably its massive manufacturing sector, has battled with high production costs.
Coal mining and washing prices increased 51.3 percent year over year in January, while oil and gas extraction prices increased 38.2 percent.
China’s state planner warned earlier this month that global inflation is likely to continue for some time, but that the country’s ability to deal with unusual price variations is strong.
Producer price inflation is expected to fall further this year, while consumer price inflation is expected to go up, according to the National Development and Reform Commission (NDRC).
To slash borrowing costs, the PBOC has cut interest rates and injected cash into the banking system, with more easing measures planned.
find out more
Yue of Capital Economics anticipates more policy rate reduction before the end of the year.
In contrast to Western central banks, which have either begun hiking interest rates or are generally expected to do so this year, China has the ability to soften.
find out more
At the same time, regulators are leery about relaxing credit conditions too quickly, which might re-ignite speculative property price rises.
The property market has slowed as a result of developer borrowing restrictions and apprehensive buyers.
“Policymakers don’t want to erase all the gains they made in the property market last year by cutting interest rates,” said Nie Wen, chief economist at Hwabao Trust.
“Now that they’ve finally managed to rein in rapidly growing (property) prices, any interest rate decreases will be structural, aimed at boosting the actual economy rather than further fuelling the property market.”
Is China combating inflation?
China’s factory-gate inflation is expected to decrease further this year, reaching an average of 3.9 percent in 2022, according to economists. PPI will fall gradually, according to the country’s top economic planner, with tighter monetary policy in the rest of the world helping to dampen the global commodity rise.
Is China’s inflation rate low?
- China’s factory-gate inflation slowed to its lowest level in six months in January, according to official statistics released on Wednesday, as the government took steps to rein in rising raw material costs.
- Globally, inflation is expected to continue for some time, but China’s ability to deal with unusual price changes has improved, according to the country’s official planner.
- Analysts anticipate that lower inflation will allow the central bank to loosen policies to help the economy recover.
What is the inflation rate in China in 2020?
Inflation rate of average consumer prices in China China’s inflation rate was 2.4 percent in 2020. Though China’s inflation rate has changed significantly in recent years, it has tended to rise from 2001 to 2020, reaching 2.4 percent in 2020.
What caused the inflation in China?
According to Xu Hongcai, deputy director of the China Association of Policy Science’s economic policy committee, the source of the higher CPI was pricing pressure transmitted from upstream producers as the PPI touched a 26-year high, albeit rising vegetable prices also contributed to consumer inflation.
Is inflation beneficial?
- Inflation, according to economists, occurs when the supply of money exceeds the demand for it.
- When inflation helps to raise consumer demand and consumption, which drives economic growth, it is considered as a positive.
- Some people believe inflation is necessary to prevent deflation, while others say it is a drag on the economy.
- Some inflation, according to John Maynard Keynes, helps to avoid the Paradox of Thrift, or postponed consumption.
Why is China’s inflation rate so low?
Recent deflation is in line with slower growth and is a symptom of a larger problem of insufficient demand.
Since 2011, China’s inflation rate has been steadily declining. In 2010-11, consumer price increases averaged 4.4 percent, while in the year to September 2014, they were only 2.2 percent. Seasonal food prices can soar pork and fresh vegetables might increase by up to 20% year over year but the downward trend indicates a more fundamental problem. It demonstrates a lack of inflationary demand-pull pressure.
The pressure to lower costs is intense since several heavy industrial sectors are overcapacity – the State Council has recognized ten such industries. Producer-price inflation has fallen from 5.8% in 2010-11 to an annual average of -1.8 percent since 2012. This issue of “too much spare capacity” or “too little demand” is reflected even more prominently in producer-price inflation, which has fallen from 5.8% in 2010-11 to an annual average of -1.8 percent since 2012. The drop is not entirely explained by commodity prices.
Over the 14 years for which we have quarterly data, there is a trade-off between growth and inflation. In most cases, quicker growth leads to higher inflation, and vice versa. There would be a gap between growth and inflation if the disinflation trend were primarily an inflation problem rather than a demand-side problem, but this has not been the case.
The recent deflation is in line with slower growth and is a symptom of a larger problem of insufficient demand. In the third quarter of 2014, the Chinese GDP grew by 7.3 percent. Despite the fact that domestic demand has stabilized, with the exception of one quarter in 2009 during the financial crisis, this is the slowest rise in nearly 14 years of data.
As a result, we believe growth has slowed more than it should have – more than is required to keep inflation or other indicators of overheating under control. Data show a noticeable reduction in investment, but inflation is the clearest evidence that demand has dropped too much in comparison to supply.
The trend in inflation, as well as its correlation with lower GDP, suggest that the issue is more complex than the base effect and temporary supply shocks. A more fundamental reason is at work: the mismatch between supply capacity and effective demand.
This’spare capacity’ is reflected in lowering inflation, as well as low capacity utilization and slack in the labor market.
Slack in the labor market has frequently been overlooked in discussions about economic growth. Not only is there a scarcity of data, particularly monthly or quarterly estimates, but there has also been an overemphasis on the number of jobs generated each year, rather than whether or not this includes replacement or, more crucially, the size of the labor supply.
However, the Purchasing Managers’ Index reveals that manufacturing has been losing jobs since 2012, and the larger services sector has not been able to compensate fully. In the meantime, salary growth has stalled, and more than 7 million new graduates are expected to enter the workforce in 2014.
We believe there is a strong argument for counter-cyclical policies because inflation, capacity utilization, and the labor market all indicate to insufficient demand. To promote demand, monetary policy may need to be more active, with the central bank encouraging low-cost lending. However, fiscal policy and reform efforts may have a counter-cyclical effect: infrastructure investment, tax cuts, and government streamlining have all aided economic growth thus far in 2014.
What is the unemployment rate in China?
Unemployment refers to the percentage of the labor force that is unemployed yet looking for job. The unemployment rate in China in 2020 was 5.00 percent, up 0.4 percent from 2019. The unemployment rate in China in 2019 was 4.60 percent, up 0.3 percent from 2018.
What is the literacy rate in China?
The percentage of adults aged 15 and above who can read and write a brief straightforward statement about their daily lives is known as the adult literacy rate. The literacy rate in China in 2018 was 96.84 percent, up 1.72 percent from 2010.
Is China inflating the world?
And, as worldwide demand picks up following the pandemic, the higher prices aren’t deterring customers: Exports from China are expected to increase by 21% this year, the largest increase in over a decade.