how-big-is-chinas-inflation-problem

How big is ChinaÆs inflation problem?

With ChinaÆs economic growth rate set to drop and the central bank sticking to its anti-inflation policy stance, inflation is unlikely to get out of hand. But expect rate hikes in the months ahead.

By Chi Lo

June 23, 2008

ChinaÆs consumer price inflation moderated to 7.7% year-on-year in May versus 8.5% in April, and the core rate slowed to 1.7% from 1.8% in April. The big gap between the headline and core inflation rate amounting to six full percentage points suggests that rising inflation so far has been a relative price shock, not a rise in the general price level Chart 1.

However, inflation expectations are creeping up, albeit slowly, underscoring the need for China to ônormaliseö its super-stimulative monetary policy. Policy and growth uncertainties will continue to haunt ChinaÆs financial markets and create sharp volatility if the authorities do not act decisively.

Inflation risk still contained
The recent Sichuan earthquake may boost...

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North Asia