Editorials

Inflationary pressure

(China Daily)
Updated: 2010-06-12 08:23

As inflation rises further, pushing real deposit interest rates deep into negative territory, a clear policy response on the urgency to raise interest rates is badly needed.

China's economic planners have criticized some media reports for stoking inflation fears. But criticisms have not prevented the consumer price index (CPI) from crossing the government-targeted 3 percent ceiling for the year.

Latest statistics show China's consumer inflation in May reached 3.1 percent, the quickest pace in 19 months, while producer prices rose to 7.1 percent, the highest in 20 months.

Related readings:  Govt bonds decline on inflation report jitters  Price hikes in certain basic goods fuel inflation fears  CPI increases 3.1% in May  China inflation to peak in summer: economist

Policymakers should pay close attention to growing public concern over climbing consumer prices, because unwarranted fear of rising prices can make taming inflation more difficult. They should ensure that the annual CPI doesn't cross the targeted figure, and conduct studies to determine how high inflation could rise and what steps the government should take to keep it under control.

A National Bureau of Statistics spokesman said yesterday that the current high inflation was largely the result of soaring food prices and a low year-on-year basis of comparison. If that is the case, policymakers can wait for a couple of months for the low-comparison basis phase to pass and in the meantime focus on how to control rising food prices.

Yet such explanations can hardly allay the public's fear over the inflationary impact of the flood of cheap credits the government has used since late 2008 to stimulate economic growth.

As inflation rises further, pushing real deposit interest rates deep into negative territory, a clear policy response on the urgency to raise interest rates is badly needed.

Moreover, the increase of minimum wages in a number of provinces and the recent pay rise in some companies make wage inflation an increasing possibility, but that doesn't seem to have appeared on the policymakers' radar.

Will policymakers accord priority to increasing wages to narrow the long-term income disparity over the fight against short-term inflation? The answer will play a big role in shaping people's expectations about the general price trend.

(China Daily 06/12/2010 page5)