Mild inflation may be long-term trend in China: economists

08:18, May 23, 2011      

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Taming China's inflation has topped media headlines over the past months. However, economists said instead of coming down, mild inflation would accompany China for a relatively long period of time.

China's inflation stayed stubbornly high in April, in spite of the government's efforts. The consumer price index, a main gauge of inflation, rose 5.3 percent in April from one year earlier, slightly lower than March's 5.4-percent rise, but still higher than expected.

Inflation, however, was an inevitable result for China's current stage of development, said Zhang Xiaojing, a researcher with the Chinese Academy of Social Sciences, a government think tank.

China's rapid industrialization and urbanization have pushed up prices of resources, such as labor and land, which then fuels inflation, Zhang said.

Meanwhile, external factors, including rising prices of grain, resources and energy on the global market, causes imported inflation, and a sign of easing is expected to be seen in the short run, he said.

Xu Lianzhong, director of the Analysis and Prediction Office of the National Development and Reform Commission (NDRC), voices similar ideas as Zhang, but chose wages as the major cause for the mild inflation trend.

Over the past decades, China's economic boom has largely been built on cheap labor and excessive use of resources. But a new generation of migrant workers demanded higher pay and better treatment, which adds to labor costs at home.

In an effort to shift the economy to a more domestic consumption-driven growth, the government has been striving to raise farmers' incomes and those of low and medium-income groups in cities. The move would help enhance the public's purchasing power and also boost consumer prices, Xu said.

In the past year, the per capita income of China's urban residents grew 7.8 percent year on year. As a new emphasis, laid out in the country's 12th Five-year Plan (2011-2015), the government vowed to make wages outpace economic growth.

China should endure an inflation rate between five percent and 10 percent in the long term, which might be a necessary precondition for China to maintain relatively quick economic growth, said Wang Jian, secretary general of the NDRC's China Society of Marcoeconomics.

Although China faces a daunting battle against inflation, economists said the economy would not spiral out of control.

Wang noted that China would not descend into an inflation spiral because the country's inflation is mainly caused by imported inflation and rising food prices and wages, which would not contribute to an inflation rate of above 10 percent.

China's bumper grain harvest for seven straight years, overall balanced industrial market and overcapacity of production in some sectors would also reduce the chances for hyperinflation in China, economists said.

Source: Xinhua
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