Tightening grip on inflation
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China Daily, October 17, 2011
The current easing of headline inflation indicates that rising prices may not be entrenched in the still-robust Chinese economy. Yet the dip in inflation is too shallow and too short to justify optimism about the country's fight against soaring consumer prices.
In the face of increasing uncertainties about the global economy, Chinese policymakers should press ahead with their efforts to further bring down inflationary pressures. It is simply premature and precarious to count on a global double-dip recession as a sure antidote to domestic inflation.
Latest statistics show that China's consumer inflation eased from a 37-month high for a second month in September. The year-on-year growth of the country's consumer price index (CPI) slid from 6.5 percent in July to 6.2 percent in August and 6.1 percent last month.
For Chinese policymakers who have raised the benchmark interest rate three times this year and increased the reserve requirement ratio six times to curb soaring inflation, the ongoing moderation of inflation pressures, no matter how gradual, is more than welcome.
Even better, in the absence of new inflationary factors, it is widely believed that base effects will help to tame the CPI in the coming months. And a looming slowdown in the global economy will only further weigh down demand and help bring inflation under control.Nevertheless, in spite of such high hopes for slower price rises, Chinese policymakers should not forget that the monthly CPI is still not far from its July peak. In fact, in the first nine months of this year, China's CPI climbed 5.7 percent from the same period last year, well above the government's full-year consumer inflation target of 4 percent.
More importantly, in September, food prices, which account for nearly one-third of the basket of goods in the nation's CPI, rose 13.4 percent from the previous year and 1.1 percent month-on-month.
Such food-led inflation is particularly troublesome because it will hit middle and low-income families the hardest and cannot be effectively addressed by a quick fall in the prices of international commodities, which usually lowers headline inflation.
Besides, soaring food prices may even prove more stubborn than expected as the increasing signs that the country will have another bumper harvest this year have yet to make a dent in the rise of domestic food prices.
But the gloomy growth prospects in Europe and the United States do lend credence to the argument that a global recession may be just around the corner, which will significantly reduce external demand and cool China's economic growth and inflation as well.
But it will be at China's peril to overlook the likelihood that those debt-laden rich countries may again try to reflate their way out of recession. In that case, the country should be ready to fight an even more difficult war against inflation.
