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Lingering price pressures

04-10-2012 14:17 BJT

The volatile food prices that have led the recent hike in inflation are not the only cause for concern for Chinese policymakers.

Structural inflationary pressures, such as the rising costs of labor and resources, also demand their full attention, because the country needs to advance the transformation of its growth model without risking either a sharp slowdown or runaway inflation.

China's consumer price index rose 3.6 percent year-on-year in March. The rise was largely driven by a 7.5 percent increase in food prices, which account for nearly one-third of the weighting in the calculation of the consumer price index, and rising fuel prices.

Even though the overall situation is improving - the index climbed 3.8 percent in the first quarter, under the official target of around 4 percent for the full year - some people, worried about signs of an economic slowdown in the world's second largest economy, have suggested easing monetary policies to boost growth.

They claim that short-term factors will not alter the downward trend of China's inflation for the whole year. Yet, while it is true that China's accelerated inflation can be partly attributed to a seasonable pickup in food prices, especially vegetable prices, which were up 6 percent on a month earlier and soared 20.5 percent year-on-year in March, the cold weather is clearly not the only explanation.

Equally misleading is the argument that price hikes at the pump - China raised retail gasoline and diesel prices in March by 6-7 percent - will have a limited impact on overall inflation because energy currently carries a small weight in China's consumer price index basket.

It was permissible to ignore soaring gasoline prices when cars were a rarity in China, but not now, when a single Chinese metropolis such as Beijing has more than 5 million cars on the roads.

If the major barometer of inflation fails to reflect the reality, policymakers should fix it quickly, particularly in view of the country's steadily growing appetite for energy.

Thanks to the government's determined efforts, consumer inflation is down from a 37-month high of 6.5 last July to less than 4 percent now.

With the country's population aging rapidly, China will have to brace for the rising costs of labor and resources as it strives to make its growth more environmentally friendly and energy efficient.

All these long-term inflationary pressures warrant ample caution in prematurely adding stimulus to boost growth.

Editor:Zhang Pengfei |Source: China Daily

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