Opinion

Moderate monetary policy

(China Daily)
Updated: 2010-11-18 14:55

Inflation can damage the market. Farmers cannot increase production to raise their earnings because they will find it harder to sell their output. Restoring the normalcy of the monetary policy is thus the right way to control inflation, says an article in Guangzhou Daily. Excerpts:

Prices of many agricultural products have increased dramatically, reflecting the pressure of high inflation on the economy.

Excess supply of money causes prices of goods to rise and leads to inflation. If the increase in agricultural products' prices is not offset by excess liquidity, it will not lead to inflation, let alone hyperinflation.

Prices are rising because the US dollar has devalued and excess liquidity has flooded the market. It has become like a vicious circle: The fear of inflation pushes up the prices of farm products, which in turn raises the inflation rate.

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Inflation has caused more harm to low-income households and aggravated social inequality. Considering the large gap between the haves and have-nots, high inflation could cause social conflicts.

High inflation cannot solve the unemployment problem in the long run. In fact, it could pave the way for deflation to set in, which means employment for fewer people.

Returning the monetary policy to normal and moderate is therefore the best way to control inflation and guarantee steady and sound economic growth.