Hidden danger of inflation bears close watching amid deepening trade dispute with US

By Hu Weijia Source:Global Times Published: 2018/8/22 22:18:40

Amid escalating trade friction that is creating market uncertainty, no one should underestimate the inflation pressure faced by the Chinese economy.

China's consumer price index (CPI), a main gauge of inflation, rose to a four-month high of 2.1 percent year-on-year in July from 1.9 percent in the previous month.

The current figure isn't a source of worry, but it is possible that the inflation rate in China may continue to rise.

China should attach importance to this inflation pressure, which could be attributed to several factors.

First, high housing costs in big cities are driving demand for rental apartments and pushing up urban rent levels. Rents in some cities like Beijing, Shanghai and Shenzhen showed month-on-month increases in July, contributing to a rising cost of living.

Second, China has reported several cases of the highly infectious African swine fever among hogs this month, raising concerns that the spread of the disease may push up pork prices. Combined with strong seasonal demand for the meat toward the end of the year, it's highly possible China will experience increasing pork prices.

Third, further escalation of trade disputes may drive up the price of imported products from the US due to retaliatory tariffs imposed by China. A weaker yuan will also make imported goods more expensive.

Various factors are raising inflation expectations. Some observers have said China's authorities have the tools to keep prices stable and manage inflation expectations.

However, we must keep watch on the inflation rate and take necessary measures to ensure inflation remains moderate.

The second half of 2018 is likely to be a tough one for China's economy. It's possible that China-US trade tensions will evolve into a long-lasting conflict, which may have a negative impact on China's exports and outbound investment. A number of problems in the Chinese economy such as the depreciation of the yuan will need to be dealt with.

Inflation is a hidden danger for the Chinese economy. Although the current level of inflation remains moderate, we must take preventive measures to ease upward price pressure, which will provide greater leeway to deal with thorny issues such as the trade conflict with the US.

The author is a reporter with the Global Times bizopinion@globaltimes.com.cn



Posted in: EYE ON ECONOMY

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