Chinese ‘superiority’ keeps its inflation low, economic planner boasts as US prices keep rising

Orange Wang, South China Morning Post

Posted at Jul 15 2022 01:35 PM

US Dollar bills. ABS-CBN News
US Dollar bills. ABS-CBN News

With consumer prices continuing their skyward trajectory in the United States, reaching a nearly 41-year high, China is becoming increasingly vigilant and wary of "uncertain and unstable factors" that could affect its own prices in the second half of the year.

The warning on Thursday, from the country's top economic planning agency, came after Premier Li Keqiang flagged "imported inflation" at a symposium where China's economic situation was discussed with economists and entrepreneurs, according to state media reports.

"To keep the economy running within a reasonable range ... we should not only stabilise growth but also prevent inflation and pay attention to preventing imported inflation," official broadcaster CCTV quoted Li as saying at the Tuesday event.

Beijing has thus far managed to keep its price increases much lower than other major economies, as it strives to achieve robust annual economic growth. But America's hotter-than-expected consumer price index (CPI) in June has fuelled bets of the US Federal Reserve implementing a more aggressive monetary tightening policy.

Why is China's inflation rate low compared to the US, Europe and Britain?

Such a shift by the Fed would further put pressure on the global economy.

The US reported on Wednesday that its June CPI soared by 9.1 per cent from a year earlier - well above the market-estimated 8.8 per cent increase.

International inflation, coupled with the war in Ukraine and ever-present coronavirus threats are likely to continue heaping pressure on China's economy, according to Wan Jinsong, director of the pricing department at the National Development and Reform Commission.

"In the second half of the year ... China's goods prices will still be faced with many uncertain and unstable factors," Wan said on Thursday.

Wan said that the commission would keep a close eye on China's overall price levels and the pricing trends of major commodities while strengthening market regulations and controls, with a focus on grain, pork and coal.

His view echoed that of Zou Lan, head of monetary policy at the People's Bank of China, who warned on Wednesday that considerable economic uncertainties and instability would remain over the coming six months.

"(We) need to pay attention to changes in the inflation situation," Zou said, adding that China was also being very mindful of the "accelerated monetary policy tightening in major economies" while focusing on its own situation in determining policy moves.

In sharp contrast to the US, China saw its consumer costs last month rise by 2.5 per cent from a year prior, up from an increase of 2.1 per cent in May but still within the government's maximum range for the year, which is "about 3 per cent".

"We have the confidence and ability to keep prices within a reasonable range, and the expected annual CPI target of about 3 per cent is achievable," Wan said.

He credited the "superiority" of China's political system for the "significantly lower" rise in prices than other major economies endured during in the January-June period.

It is going to be a tough 2022 - and possibly an even tougher 2023, with increased risk of recession
Kristalina Georgieva, International Monetary Fund

US President Joe Biden tried to play down the June CPI reading, calling it "unacceptably high" but also "out of date", due to it not reflecting the falling price of petrol.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said "everything is in play" for policy action when asked on Wednesday about the possibility of what would be a historic 100-basis-point interest rate hike in July, according to Bloomberg.

David Kelly, chief global strategist at JP Morgan Asset Management, expected that the Fed might raise interest rates by three-quarters of a percentage point this month, but still might feel the need to hike it further this year.

"On the bright side, we see promising signs of inflation coming off its highs, in July," he wrote in a note on Wednesday.

Competing interests tug at Biden as he mulls cutting tariffs on Chinese goods

The outlook for the global economy has "darkened significantly" in recent months, the head of the International Monetary Fund warned this week.

"It is going to be a tough 2022 - and possibly an even tougher 2023, with increased risk of recession," Kristalina Georgieva wrote in a blog on Wednesday.

Meanwhile, Beijing continues to be criticised for its strict coronavirus controls, which some say have cast a shadow over the global economy. China is due to publish its second-quarter economic growth rate on Friday.

People's Daily, the Communist Party's mouthpiece, said on Thursday that the nation is expecting to see good economic development this year while "unwaveringly" sticking to its "sustainable" zero-Covid policy.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.

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