Is China'S High Inflation Coming?

Pushing prices

If income growth is far beyond CPI, 5% inflation is also acceptable.

When China's price increase broke 5% again in March, people began to wonder whether the "5%" trend would become the norm. Is China going to bid farewell to the era of high growth and low inflation?

China International Economic Exchange Center held in Beijing in the first quarter of Wednesday

"In the first quarter, due to the higher price of the last year, and in the context of global excess liquidity and the increase in the number of major commodities in the international market, I personally expect the two quarter CPI to remain at a high level.

"Zhou Wangjun, deputy director of the price department of the China National Development and Reform Commission, said.

But he said that the top priority is to control prices at what level. If the per capita wage growth in 12th Five-Year (2011-2015 years) increased by 15%, then the inflation rate of 5% was not high; and from the index matching ratio, 10% of the GDP growth corresponded to about 5% of inflation, which did not mean that China entered the era of high inflation.

Zhou Wangjun also said, "from a long period of view, 5% of CPI and 10% of the economic growth is not to say that high growth and high inflation, it should be said that high growth and low inflation.

"

Wang Jun, a researcher at China International Economic Exchange Center, believes that China is a relatively high and moderate inflation in terms of current judgement.

In the first quarter of this year, China's gross domestic product (GDP) grew by 9.7%, an increase of 2.1% compared to the same month. In March, the consumer price index (CPI) increased by 5.4% over the same period last year. It has once again broken through 5% since November last year and hit a 32 month high. In the same month, the ex factory price (PPI) of industrial products also rose 7.3%, the highest level in 30 months.

CPI is still running high in the two quarter.

In fact, in the face of this round of price increases driven by various factors, China is using various means including tightening monetary policy, strict administrative control and increasing supply, but it still fails to withstand the pace of price rise.

Zhou Wangjun said that from the technical analysis, the overall price level of China is still in a controllable range. The price of food and housing, which is the main component of the new price increase this year, is likely to be stable and falling. This is a positive sign.

However, he did not respond positively to whether the target of CPI increase would be controlled at around 4% this year. He said that because of the complex reasons for pushing up prices, it is true that the pressure of price increases this year is relatively large.

The main problem now is that the measures adopted by governments are inconsistent.

"Let me make a comparison. The world's liquidity is a big pool. The central banks are water pipes. The water pipes are 8 centimeters thick, 3 centimeters thick, and the water pipes in China are 3 centimeters thick. The water has spilt out. China has turned the tap down, and the water faucet in the US and Japan is the biggest. Can you say that the price will not rise?" he said.

Hu Xiaolian, vice governor of the people's Bank of China, said earlier that China's inflation situation must be highly concerned. This price increase factor has not yet undergone a fundamental change. The goal of achieving a year-round increase in consumer price index (CPI) by 4% is facing greater challenges.

Wang Jun believes that prices will not be completely out of control in 2011, but they may exceed market expectations and reach a high level in the second, third quarter. They will continue to operate at relatively high levels throughout the year. 4%, the realization of the expected regulatory targets is facing greater uncertainty.

He further pointed out that in the current situation of encouraging residents to increase incomes to stimulate consumption, and at the same time, labor and employment stress, after the first wave of rising prices, it is likely to induce wage rises, further pushing up subsequent prices and plunge into a "wage price rise spiral" which is "rising prices - wage increases - further pushing prices up again and raising wages".

Since the beginning of this year, 13 provinces have carried out a moderate adjustment in the minimum wage standard, with an average increase of 22.8%.

To further reduce the tax burden on low-income people, China has recently published an amendment to the personal income tax law to increase the tax exemption amount (starting point) again, from 2000 yuan to 3000 yuan per month, and intends to change the current nine level extra progressive tax rate to seven level.

5% inflation = high inflation?

It is clear that although inflation is not dissipated, and 5% of CPI growth may become normal, how to make price rises at an affordable level may be more realistic than recognizing that the era of high inflation has arrived.

Wang Jun believes that in the medium to long term, China's inflation will play a decisive role in the growth rate of GDP. The rate of economic growth is the "core factor" and "lasting factor" to promote inflation in China. The existence of some medium and long term factors will cause the pressure of price rise to exist for a long time, and moderate inflation will become a long-term trend.

Zhou Wangjun said that in the past thirty years of reform and opening up, China has maintained high growth and low inflation. From the current economic development situation, China's economy can still maintain a relatively fast growth in the next few decades. If we compare the index of GDP and CPI, the growth rate of about 10% corresponds to 5% of CPI's rise.

He further pointed out that if the wage level rose by 15%, the sensitivity of CPI to 5% would not be too obvious. Therefore, it is the key to control prices at any affordable level.

Yang Zhiming, Vice Minister of the Ministry of human resources and social security, has said that China should strive to achieve an annual wage increase of 15%, so that during the "12th Five-Year" period, we can strive to achieve double growth in wages.

At the executive meeting of the State Council held last week, Premier Wen Jiabao made it clear that the price increase should be controlled within the limits of affordability and resolutely prevent prices from rising too fast.