Editorials

Inflationary worries

(China Daily)
Updated: 2010-04-27 07:59

Editor's note: The uncertainty of the global economy has made it difficult for Chinese policymakers to tighten the flow of credit quickly.

Policymakers better prepare for a good fight to prevent rampant inflation.

That was the gist of a report by the People's Bank of China last Friday. It recognized that the economy was off to a good start this year but it also underlined how important it was to stabilize general price levels.

The focus on price gains shows that legislators are indeed mindful of inflationary pressures despite the fact that inflation was not as high as expected in the first quarter.

Furthermore, Zhou Xiaochuan, China's central bank governor, urged last Saturday for developing nations that are rapidly growing to prevent the accumulation of asset bubbles. He also said that they should be cautious in planning their exits from stimulus measures.

His calls certainly apply to the Chinese economy, which expanded by 11.9 percent year-on-year in the first quarter, the fastest growth rate in nearly three years. And to the surprise of most observers, the country has also managed to keep inflation under control, with consumer price inflation dipping to 2.4 percent in March from 2.7 percent in February.

With the country's benchmark deposit interest rates at 2.25 percent, many used to believe that a steady climb in consumer inflation will trigger immediate interest rate hikes. Now, the economy's healthy start coupled with its tempered inflation has calmed any urgency for interest rate hikes.

Still, that doesn't mean that the flood of cheap credit that China has used to stave off the global recession will not have consequences.

The uncertainty of the global economy has made it difficult for Chinese policymakers to tighten the flow of credit quickly. But the inflationary danger of excessively high liquidity will increase significantly if China further delays its exit from stimulus measures.

(China Daily 04/27/2010 page8)