Business Maverick

China’s Central Bank Governor Sees Inflation Below Target

By Bloomberg 10 June 2021
Caption
A customer shows her mobile phone to a vendor as proof of digital payment at an open-air market in Guangzhou, China, on Monday, May 24, 2021. China's central bank has sought to clarify that it won't let the yuan strengthen too much, too quickly, as mixed signals from officials underline the challenges presented by a currency trading near a three-year high. Photographer: Qilai Shen/Bloomberg

China’s central bank Governor Yi Gang said consumer inflation is expected to stay under 2% this year, below the government’s official target of about 3%.

The economy is operating within a reasonable range close to the potential output level, and prices are overall manageable, Yi said at the Lujiazui Forum in Shanghai. The interest rate is kept at an appropriate level, and it’s still relatively low compared with rates in other developing markets, he said.

“There are still uncertainties with the overseas pandemic situation, economic recovery and macro policies, and we must not lower our guard regarding inflation and deflation pressures from all sides,” the governor said.

But consumer price rises are still muted

Consumer inflation accelerated to 1.3% in May, government data showed Wednesday, below economists estimates of 1.6%. Producer prices have been surging at a faster pace though, largely due to commodity prices, fueling concerns that inflation pressures could spread more broadly in the economy. So far, there’s little evidence of that happening as factories have been absorbing rising costs.

Yi also said the surge in producer prices this year is partially due to a low base from last year.

China’s potential economic growth will slow, as the economy shifts toward high-quality development from high-speed growth, while the comparison base gets bigger, Yi said. The aging population will help curb inflation, while the economy’s transition toward green energy might add to price pressures.

China will keep the exchange rate of yuan basically stable, and encourage financial institutions to use monetary policy tools to help the nation achieve the goal of becoming carbon neutral by 2060, according to Yi.

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