Inflation figures set alarm bells ringing over economic outlook

PUBLISHED : Sunday, 11 September, 2011, 12:00am
UPDATED : Sunday, 11 September, 2011, 12:00am


Many opinions were expressed after the National Bureau of Statistics' release of economic figures on Friday, and they were divided over the economy's prospects for the rest of the year.

Of the mainland economists and business commentators, few were as sanguine as they had been at the beginning of the year. At that time, some even predicted that inflation would begin to abate in the first half of the year, which it did not.

Now the question is: with the consumer price index (CPI) last month standing at 6.2 per cent year on year - in comparison with 6.5 per cent in July, 6.4 per cent in June and 5.5 per cent in May - will inflation really begin to taper off now?

Judging from the views of the mainland's leading economic analysts, this question is still hard to answer. Deep worries persist.

Some government economists expected the yearly inflation (in CPI) to range from 5 to 5.3 per cent - in contrast with the planned target of only 4 per cent - as compared with about 5.5 per cent as forecast by international investment services.

But there were private researchers who came up with even worse forecasts. One of these, Han Zhiguo , who runs his own consulting service in Beijing, told the financial news website that his forecast was an astonishing 8 per cent.

Ba Shusong , a senior economist with the Development Research Centre of the State Council, did not give his forecast, but told national broadcaster China Central Television that, overall, inflation on the mainland would remain at a high level.

Guo Tianyong , director of the Central University of Finance and Economics' banking research centre, said one month's data was not enough to show that the worst was over. 'There may be a chance that price rises will become worse again,' he warned on, another financial information site.

At the same time, in a readers' survey on, 77 per cent of the respondents said inflation would probably worsen in the remaining part of the year, while 15 per cent felt that scenario was unlikely and 8 per cent said it would depend on other factors.

So there was no reason, Guo said, for the mainland to relax its macroeconomic policies.

Liu Yuhui, director of the Chinese Academy of Social Sciences' economic evaluation centre, was quoted on as saying inflation could be made less threatening so long as the mainland kept up its efforts to rein in government investment, as seen in July.

Many things contributed to price rises last month, including the costs of crude oil and medicine. But the biggest contributor was the food sector, which saw an increase of 13.4 per cent from the same time last year and contributed more than 4 percentage points to the CPI.

The best that the government could do was just to offer a buffer for low-income urban residents, rather than bring down agricultural prices, Galaxy Securities chief economist Zuo Xiaolei warned.

Li Daokui , a Tsinghua University economics professor and member of the central bank advisory committee, told CCTV that the mainland must be prepared for a prolonged period of relatively high inflation while generating a not-so-high (although still higher than most other countries) growth rate.

Dangers abound apart from agriculture. Beijing's credit tightening has further complicated the picture of 'shadow banking' - the basically unregulated business pursued by millions of small, private money lenders - where interest rates have hit a 'maddening level', according to a commentary in the National Business Daily.

It warned that once credit lines were overstretched, many private lenders would collapse, hurting the national banking business, which would eventually trigger a Chinese equivalent of the sub-prime crisis.

Overseas, the lack of growth in the United States and the euro zone has meant fewer orders for Chinese manufacturers - from the beginning of the year right up to the Christmas season.

There is a high level of danger that an even worse crisis will occur, according to a column in the Beijing-based International Business Times.

On Friday evening, after running a lengthy review of the dim global economic prospects, CCTV went so far as to call for 'appropriate policies' to be taken against the so-called second dip in the major developed economies.