How to cure China’s declining consumer prices divides opinion as deflation signs deepen
- Economist Steven Ng-Sheong Cheung saying that China should target a yearly inflation rate of 6 per cent as soon as possible triggered a backlash
- Setting a higher inflation target does not necessarily mean that there will be ‘excess’ money in the markets, while it also raises the risk of asset bubbles, analysts said
What should China do to tackle declining prices? That is a question that has generated heated exchanges among economists and analysts as the world’s second-largest economy struggles with slowing growth and dangerously low inflation.
Producer prices, which are measured at the factory gates and heavily driven by the cost of commodities and raw materials, also dropped by 3 per cent in November and have remained in negative territory for the past year.
Larry Hu, chief China economist at Macquarie Group, estimated that the consumer price index (CPI) may only rise by 0.3 per cent in 2023, much lower than Beijing’s target of “around 3 per cent.”
Beijing has resisted so-called flood-like stimulus – large scale monetary and fiscal expansion – often a textbook response to slow growth and low inflation.