China facing ‘quasi-stagflation’ risk as rising factory prices increase pressure on slowing economy

China’s official consumer price index (CPI) rose by 1.5 per cent in October, but its producer price index (PPI) rose by 13.5 per cent last month from a year earlier

China’s economic growth slowed to a rise of 4.9 per cent in the third quarter compared with a year earlier, down from 7.9 per cent growth in the second quarter

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China’s official consumer price index (CPI) rose by 1.5 per cent in October from a year earlier, up from a rise of 0.7 per cent in September. Photo: Xinhua

Published: 8:30pm, 22 Nov 2021Updated: 11:43pm, 22 Nov 2021

With the economy facing “periodic, structural, and cyclical constraints” amid rising concerns over upcoming growth prospects, China could enter into a period of “quasi-stagflation”, a central bank adviser has warned.

Liu Shijin, a member of the monetary policy committee at the People’s Bank of China (PBOC), said that while inflation risks are under control, a persistently high producer price index (PPI) – which reflects the prices factories charge wholesalers for their products – may add pressure to the overall risk of inflation.

China’s consumer inflation has remained subdued recently, with prices rising by just 1.5 per cent in October from a year earlier, up from a rise of 0.7 per cent in September, but the PPI rose by 13.5 per cent last month from a year earlier, up from 10.7 per cent in September – the highest since July 1995.

“It’s possible that the speed of economic growth is too slow, along with high prices, I am referring to mainly PPI, but whether it will spill over to [the consumer price index], we need to monitor,” Liu said on Sunday at an online event organised by Renmin University of China, adding that China could enter into a period of “quasi-stagflation”.

Stagflation is a situation in which low economic growth and high inflation occur at the same time, potentially leading to higher unemployment and lower wage growth.

China’s economy grew by 4.9 per cent in the third quarter compared with a year earlier, down from the 7.9 per cent growth seen in the second quarter.

In its third quarter monetary policy implementation report, released on Friday, the PBOC said that it will continue to strike a balance between economic growth and risk control, but acknowledged that it is becoming increasingly difficult to keep the economy running smoothly as a result of “periodic, structural, and cyclical constraints”.