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Some observers believe the inflation is caused by overheated investments, especially the stock market frenzy. The market boom stimulates consumption.
This opinion does not hold water. One of the basic necessities of life, pork consumption does not alter dramatically with income growth.
When people have more money, they do tend to buy more pork. But their increased pork consumption stops at a certain point even if their income keeps rising. It takes a long time for the revenue from the capital market to translate into increased consumption in life's necessities.
Judging from a broad look at the Chinese economy, inflationary pressure is not overly strong. CPI growth of 3 percent, mild inflation, will not hurt the economic soundness or the standard of living unless it is coupled with a dramatic growth in the Producer Price Index (PPI).
Actually, a certain amount of inflation will help stabilize economic prosperity and growth.
It is far from reasonable to expect food, services and transportation to maintain their current prices or even decrease while people enjoy an average annual income growth of 10 percent.
When the economy achieves two-digit growth every year, consumer goods and investment goods should also rise in price. Thus, investors can expect a steady return from their investments and producers get reasonable profits.
Admittedly, the risk of excessive liquidity currently exists. Yet the economy remains one of high growth and low inflation, which is not going to be reversed in the short term.
The price rise in investment tools is unlikely to reach consumer goods. And disastrous inflation will not trouble China at this moment.
Of course, social groups at different income levels have different capabilities of coping with inflation. A food price hike obviously puts more pressure on low-income families.
The central government will help those suffering from the price rise. Special subsidies will be granted to help them through the temporary price hikes in consumer goods.