Keeping a lid on inflation must be priority in China
The rise in inflation comes as China faces pressure from deteriorating conditions both at home and abroad, which could exacerbate the impact of a high inflation rate and downward pressure in economic growth.
While recent official Chinese data suggest there was only a mild increase in the nation’s Consumer Price Index (CPI) in July, the figure may have failed to capture the full picture. There have been abundant signs of rising inflation across the board, from healthcare to food to housing, and policymakers must be vigilant about the potential negative impact of high inflation on the economy and living standards.
More alarming, the rise in inflation comes as China faces pressure from deteriorating conditions both at home and abroad, which could exacerbate the impact of a high inflation rate and downward pressure in economic growth. Thus, maintaining a stable inflation rate should be among the top priorities for policymakers.
Like many countries, China maintained a low inflation rate even amid excessive global liquidity that stemmed from worldwide monetary easing after the financial crisis in 2008. For many countries that struggled to rebound from the crisis, low inflation was a great thing. It helped to avoid the impact of higher prices on their already slowing economies.
Some countries weren’t so lucky. Take Venezuela: the country’s crisis is living proof of how high inflation can crush an economy. China, however, was among the lucky ones. Despite high money supply growth during a period of rapid urbanization and debt-based economic growth, China was able to maintain a low inflation rate.
This outcome might be attributed to a combination of excess capacity, the country’s consumption and services upgrade, the rise of e-commerce and the massive real estate market, which absorbed much of the liquidity and wealth.
But this favorable situation may have ended, given emerging signs of rising consumer prices.
Data from the National Bureau of Statistics showed that the CPI rose 2.1 percent year-on-year in July, with prices of food rising 0.5 percent and prices of non-food items up 2.4 percent.
The CPI’s return to a level above 2 percent, set against the backdrop of an escalating trade war and domestic downward pressure, sparked concern in some quarters. But things may be even worse than the numbers indicate. According to the Ministry of Commerce, during the week of August 13-19, food prices rose 1 percent week-on-week, with egg prices up by as much as 7.3 percent.
Some consumers have even claimed that food prices are two to three times higher than a year earlier.
Apart from food prices, other necessities have also seen significant price hikes, including rents. In Beijing, rents jumped 2.6 percent in July from the previous month, according to data from real estate firm Lianjia. Higher rentals have been seen across the country, with gains in 11 major cities of more than 20 percent year-on-year.
Costs in other areas such as fuel and healthcare are also on the rise. In July, gasoline and diesel prices jumped 22.7 percent and 25.1 percent year-on-year, respectively, and healthcare cost rose 4.9 percent year-on-year.
It’s very clear that the costs of medical care, food, travel and other items have all gone up enough to weigh on consumers’ living standards. While the 2.1 percent growth in the official CPI can still be considered mild, the cost of living is rising, and that could have a serious impact on the public.
During a high-level meeting at the end of July, top Chinese policymakers stressed their goals of maintaining stable employment, financial markets, foreign trade, foreign capital flows, investment and expectations. But maintaining a stable inflation rate should also be among the top priorities.