Macroscope | Can China meet its growth and inflation targets as Ukraine war adds to price pressures?

The upshot of the Fed’s war on inflation is that it adds to the dollar’s appeal and threatens the renminbi

Beijing’s choice is thus between letting interest rates and the yuan slip to bolster growth prospects, or tightening policy to resist higher inflation

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A woman on a bike brings vegetables to be delivered through the perimeter wall of a neighbourhood placed under lockdown due to Covid-19 in Shanghai on March 26. With the Chinese economy showing signs of slowing, any efforts to ramp up growth will be at the expense of domestic price stability. Photo: Bloomberg

Published: 2:30pm, 28 Mar 2022Updated: 4:21pm, 28 Mar 2022

With inflation rates rising around the world, China has so far been spared the worst of the impact of the Ukraine crisis on domestic prices. But the key question is how long before the fallout from higher energy and other commodity prices begins to threaten Beijing’s 3 per cent inflation target for 2022?

Consumer price rises might seem subdued now, with headline inflation running at 0.9 per cent over the past two months to February, but higher prices could start feeding up the chain fairly soon.

With crude oil prices up over 80 per cent from a year ago, import prices 10.6 per cent higher in the past 12 months and producer price inflation running at 8.8 per cent, might consumer price inflation breach the 3 per cent target before the year is out?

As the pendulum swings towards higher inflation, it begs the question whether Beijing needs to take earlier preventive measures and switch gears towards a tightening bias on monetary policy very soon, especially with the US Federal Reserve moving towards faster interest rate rises.

Beijing needs to fend off inflation risks, and sooner rather than later. It will be no easy task walking the fine line between the government’s growth target of around 5.5 per cent and 3 per cent inflation target.

There is no magic monetary and fiscal formula which can meet both objectives in one fell swoop.

.css-1m2rp1p{color:#34b8b5;}Macroscope | Can China meet its growth and inflation targets as Ukraine war adds to price pressures?

Macroscope | Can China meet its growth and inflation targets as Ukraine war adds to price pressures?