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Expert: too early to talk about inflation
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15:16, August 05, 2009

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With signs of economic recovery, prices are changing. Real estate prices, stock prices, prices of staple agricultural products, industrial raw material prices have recovered to some extent, together with the current sufficient liquidity, people start to worry about there will be inflation during the second half of the year. Vice President Chen Houyi of the Chinese Association of Laws of Economics said that it is too early to talk about inflation right now.

Judging from the overall situation, the general price level in China is relatively stable. In the first half of the year, CPI fell 1.1%, PPI fell 5.9%. In June, CPI fell 1.7%. This shows that the current prices are still at a relatively low level.

At present, price levels are in recovery. This is to cover the large decline of prices over the past two years. Generally speaking, when CPI hits 3% there is an inflation warning. According to a study by Chinese Association of Laws of Economics, only when CPI reaches 4.5 percent can we say inflation is on the way. So now it is not realistic to predict signs of inflation. Quite the contrary, at present we need to be on guard against the risk of deflation to a certain extent.

Rich liquidity certainly paved the way for inflation. By the end of June, the balance of broad money supply (M2) reached 56.9 trillion yuan, up by 28.5 percent; balance of narrow money supply (M1) hit 19.3 trillion yuan, an increase of 24.8%; balance of the amount of currency in circulation (M0) reached 3.4 trillion yuan, an increase of 11.5%.

Balance of RMB loans of financial institutions hit 37.7 trillion yuan, up by more than 4.9 trillion yuan. Data shows that from January to June this year, banking institutions invested 7.37 trillion yuan in new loans.

Judging by the gap between M2, the indicator of excess liquidity and nominal GDP growth rate, the current liquidity situation is at its most relaxed state in a decade.

At present, when liquidity shrinks, lots of projects started in the first six months of this year will face funding difficulties, so the monetary policy will have to maintain a moderate easing state to a certain degree.

Therefore, it is too early to talk about inflation, while to guard against inflation is taking precautions before it is too late.

By People's Daily Online

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