Worries about high inflation in China overblown

BEIJING (Xinhua) – China’s consumer price index (CPI), a main gauge of inflation, rose at the fastest pace in almost eight years, but worries over excessive inflation in the country are overstated, analysts said.

The CPI rose 3.8 per cent year on year last month, up from three per cent in September, the National Bureau of Statistics said last Saturday.

The hike in CPI was mainly driven by soaring meat prices, which rose 101.3 per cent year on year in October, contributing nearly two thirds to the CPI growth.

“As market demand stays relatively subdued, there are no factors that significantly drive up CPI other than meat prices,” the Bank of Communications said in a research note.

Affected by African swine fever and cyclical factors, China’s meat prices rose visibly during the past few months.

Official data showed that meat imported into the country reached about 1.33 million tonnes during the first three quarters, up 43.6 per cent year on year. Chief Economist of Chinese Property Developer Evergrande Ren Zeping described the uptick in CPI as “structural inflation” driven only by meat prices rather than overall inflation.

“As downward pressure on the economy remains, the main fear is deflation rather than overheated demand,” Ren said in a research note, cautioning that a tighter monetary policy to curb inflation could deteriorate corporate earnings.

While food prices are relatively high, it is worth noticing that the prices of industrial consumer goods, services and housing have been rather stable since the beginning of this year, said Guo Liyan, a researcher with the Chinese Academy of Macroeconomic Research.

Food prices grew 15.5 per cent year on year last month, up from 11.2 per cent in September, while non-food prices gained 0.9 per cent, 0.1 percentage points lower than in September.

For the whole year of 2019, China is on track to meet the CPI target of three per cent set by the government, according to Guo.

The country should apply flexible policies to counter rising food prices while addressing deflationary pressure in the industrial sector, with counter-cyclical adjustments to expand demand and stabilise growth, the Bank of Communications suggested.

Customers select vegetables at a supermarket in Hangzhou, east China’s Zhejiang province. PHOTO: AFP