Adviser: Chronic inflation will plague China for decade
Source: Bloomberg News |
June 30, 2011, Thursday
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Print Edition
Print Edition
CHINA'S inflation, already at a three-year high, is "most likely chronic" and will remain a problem over the next decade, Li Daokui, an academic adviser to the People's Bank of China said yesterday.
The central bank, which has raised borrowing costs four times since October, needs to increase interest rates further to combat price gains, Li, a professor at Tsinghua University, said at a conference in Beijing. Li, 47, said he was giving his view as an academic.
China is wrestling with price increases driven by higher food, fuel and labor costs. Premier Wen Jiabao said last week that the government may fail to meet its inflation target of 4 percent this year even as efforts to stem gains have worked and that the overall price level will drop steadily.
"High inflation pressure will be a long-term structural issue for China, mainly driven by cost-push factors such as rising wages, energy and resources prices," said Chang Jian, a Hong Kong-based economist with Barclays Capital, who previously worked at the World Bank. "The nation may face a situation over the next decade where inflation hovers around 4 to 5 percent a year while the economy grows at 7 to 8 percent."
Inflation accelerated to 5.5 percent last month and may top 6 percent in June, according to banks, including China International Capital Corp and Mizuho Securities Asia Ltd. The benchmark one-year lending rate is 6.31 percent, and the deposit rate is 3.25 percent.
"China needs to correct the situation of negative real interest rates so another three to four rate increases are needed by the end of 2012 to change that," Chang said.
The benchmark one-year deposit rate has lagged behind consumer price gains for more than one year.
The central bank has paused for 12 weeks in raising interest rates, the longest gap since increases began in October, as officials gauge the economy's strength amid a slowdown in the US and a debt crisis in Europe.
Inflation will be a long-term problem in China due to changes in the structure of the economy, Li said.
Wages of "blue collar" workers have kept rising, pushing up manufacturing costs, while prices of agricultural products rise as farm workers migrate to the cities, he said.
The central bank, which has raised borrowing costs four times since October, needs to increase interest rates further to combat price gains, Li, a professor at Tsinghua University, said at a conference in Beijing. Li, 47, said he was giving his view as an academic.
China is wrestling with price increases driven by higher food, fuel and labor costs. Premier Wen Jiabao said last week that the government may fail to meet its inflation target of 4 percent this year even as efforts to stem gains have worked and that the overall price level will drop steadily.
"High inflation pressure will be a long-term structural issue for China, mainly driven by cost-push factors such as rising wages, energy and resources prices," said Chang Jian, a Hong Kong-based economist with Barclays Capital, who previously worked at the World Bank. "The nation may face a situation over the next decade where inflation hovers around 4 to 5 percent a year while the economy grows at 7 to 8 percent."
Inflation accelerated to 5.5 percent last month and may top 6 percent in June, according to banks, including China International Capital Corp and Mizuho Securities Asia Ltd. The benchmark one-year lending rate is 6.31 percent, and the deposit rate is 3.25 percent.
"China needs to correct the situation of negative real interest rates so another three to four rate increases are needed by the end of 2012 to change that," Chang said.
The benchmark one-year deposit rate has lagged behind consumer price gains for more than one year.
The central bank has paused for 12 weeks in raising interest rates, the longest gap since increases began in October, as officials gauge the economy's strength amid a slowdown in the US and a debt crisis in Europe.
Inflation will be a long-term problem in China due to changes in the structure of the economy, Li said.
Wages of "blue collar" workers have kept rising, pushing up manufacturing costs, while prices of agricultural products rise as farm workers migrate to the cities, he said.
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