Views from the East: October's CPI Increase

By Ruoji Tang and Tang Xiangyang
Published: 2010-11-16

China’s October CPI rose 4.4 percent on the level of the same period last year according to the National Bureau of Statistics (NBS). Prior to the announcement by the NBS there were already suspicions that the annual target set by the government last March of keeping CPI growth under 3 percent would not be met. More importantly, the announcement seems to have confirmed the public’s worst fears of rising inflation and has exacerbated concerns that average household incomes are not keeping up with rising prices.

On Thursday, Cheng Siwei, vice chairman of the Ninth and Tenth NPC Standing Committee, announced: “It is impossible for China to contain the annual CPI within 3 percent. There will be a moderate CPI growth of 5 percent.” Following his statement, Cheng assured citizens that 5 percent is not that terrible, since we are facing a projected GDP growth of 10 percent.

The rising CPI will likely mean a tighter monetary policy, but what will that mean for consumers? What is the outlook for future inflation?

We have taken a look at what economists and commentators from the Chinese media have been saying…

People’s Daily is adamant that CPI growth is ultimately a good thing:

“We do not deny that inflation will have some impact on the market, but on the whole, China’s economy is faring well. The A-share market will continue with good momentum. This is beyond doubt.”

The Economist Wu Qing writes in Business China:

“Monetary policy has a 1 year delay, so in the short term, the CPI will remain high... But a high CPI has one benefit in that it slows the appreciation of RMB... If the appreciation of the RMB slows or stops, then expect strong, rapid inflation.

Interest rates cannot reduce liquidity... they cannot curb inflation, only currency appreciation can.”

Commentator Wang Shichuan writes for China Youth Daily that the announcement itself is a welcome one, even if its contents are not:

“The Chinese Academy of Social Sciences published a study which stated that from January 2006 to May 2010, China’s CPI had been manually adjusted and purposely underestimated by as much as 7 percent. … A higher CPI is not the end of the world. But watering down data to meet annual targets and fool the public will damage the credibility of the government and create widespread resentment.

Now that the government has openly acknowledged the rise in CPI, the public will feel better knowing they are not being duped, and departments can develop appropriate corresponding policies.”

Not everyone, however, embraced the announcement...

Zhou Junsheng, a commentator from the Changjiang Times writes:

“…Food products comprise 34 percent of China’s CPI, and any increase in CPI reflects the impact higher prices have on people’s pantries. A one percent increase in CPI has a direct relationship with the amount spent by the average consumer and an inverse relationship with their quality of life.”

A commentator from Eastday writes:

“[Mr. Cheng’s judgment] is terrifying. Most people never see any of the benefits from the country’s economic growth. For them, a 5 percent CPI would be devastating.

Does Mr. Cheng understand China’s unequal distribution of wealth? If he does not, then he has no right to call himself an economist. If he does, then his remarks are unconscionable. However, for my part, I think he does understand. A man living in modern China who has not perceived the unequal distribution of wealth is unthinkable. Therefore, Mr. Cheng, I politely ask that you take some time to examine your conscience! ”

Lastly, Yi Peng, a commentator with the Economic Observer discusses the role of the media:

“A driving force of inflation that is impossible to be ignored is the role played by themedia. It exaggerates the state of inflation, hypes expectations of inflation, urges people to purchase a variety of assets and products to avoid being hit by inflation, and thus further exacerbates the situation...Biased and incomplete reports may mislead people and cause even greater inflation. The rumored printing of an additional 42 trillion yuan is a good example.”