The widening gap between CPI and PPI “suggests an uneven recovery of the economy,” said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd. “Despite the commodity boom, the service sector has yet to catch up.”
Wages are lagging and the central bank will likely keep its policy stance “largely neutral,” he said. The People’s Bank of China is seeking to scale back the stimulus it pumped into the economy during the pandemic last year, worried by the build up of debt. Economists expect policy makers to slow the pace of credit expansion rather than raise interest rates. The Communist Party’s Politburo, China’s top decision-making body, said last month there won’t be any sharp reversal of macroeconomic policies. China aims to keep consumer inflation at around 3% this year, but an NBS official said in a recent interview that the headline index is expected to be “significantly lower” than the official target in 2021.
China exported deflation to the world by producing goods at lower prices than anywhere else for years. The interconnectedness of the global economy means that if inflation does return as a trend, it will not only occur in one country but will be a global phenomenon. That suggests the world’s relationship with China and what happens inside China will have a strong bearing on the outlook for longer-term inflation.Click HERE to subscribe to Fuller Treacy Money Back to top