OPINION> Commentary
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OPINION> Commentary
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Look beyond the CPI dip
(China Daily)
Updated: 2009-03-11 07:48 China's first consumer price index slump in six years will likely trigger speculation on the need for further interest rate cuts to boost economic growth. After consumer prices dropped 1.6 percent in February from a year earlier, deflation looks like an increasingly real concern. However, Chinese monetary authorities should not rush to loosen monetary policies simply because the collapse of international commodity prices has dragged the inflation index below zero. The gloomy global growth outlook and the ongoing domestic economic slowdown indicate that consumer inflation may remain negative in coming months. But the high base a year ago should make the current fall of consumer inflation less worrisome.
Surging food and commodity prices at home and abroad, as well as severe winter snowstorms that disrupted agricultural and industrial production, spurred the country's inflation to an 11-year high of 8.7 percent in February of 2008. It is only natural for deflation to occur as global natural resource prices fell 48.8 percent in February from a year earlier, with prices for other commodities falling 33 percent. Besides these international price changes and one-off domestic factors, Chinese monetary authorities also need to keep an eye on the inflationary impact of the country's massive stimulus package to spark an economic recovery. Since most counter-crisis measures are yet to kick in , it is premature to tell how long the overall price level will stay low. While the current fall of consumer prices allays fears of excessive inflation, the Chinese government has demonstrated its vigilance against possible price hikes by setting a 4 percent inflation target for 2009. As Chinese banks extended new loans at unprecedented speed in the first two months of the year, policymakers will watch carefully to see if a surge in liquidity inflates domestic prices later on. In usual cases of deflation, falling prices are accompanied by shrinking loans and money supply and an economic recession. So the Chinese economy may have seen the worst of its downturn. The government's resolution and readiness to fight the crisis with all needed efforts should exempt the country from a long spell of deflation. Deflation appears to be only a red herring. Now Chinese policymakers should focus on implementing all the counter-crisis measures the country has announced so far. (China Daily 03/11/2009 page9) |
