China inflation set to remain below other major economies in 2023

  • Inflation in China this year is unlikely to hit the heights of other major economies as they reopened, allowing for further policy loosening to support the economy
  • Consumer inflation stood at 2% in 2022, below the official target of ‘around 3%’ after the consumer price index rose by 1.8% in Dec 22.
  • Producer price index (PPI), which reflects the prices that factories charge wholesalers for products, grew by 4.1% last year after falling by 0.7% in Dec 22.
  • Though the uptick in consumer and producer price inflations point to an upward pressure on prices as a result of living with Covid, the uptick in inflation is unlikely to be as large as that seen in many other economies as they reopened. And it is unlikely that the inflation will impose any major constraints on the central bank’s ability to support the economy.
  • Inflation in China in almost undeniable in the coming quarters, but there are good reasons to believe it won’t surge to the same extent as in many other economies as they reopened. Such reasons include the composition of China’s CPI basket, more modest excess savings, ample domestic goods supply, a flexible migrant labour force, and the timing of the reopening.
  • Additionally, although international commodity prices may fluctuate at high levels, and imported inflationary pressures still exist, with continuous bumper harvests in grain production, reasonable and sufficient hog production capacity, sufficient supply of important livelihood commodities, strong basic energy security, and further improvement of the system for ensuring supply and stabilising prices, there is substantial confidence that China is capable of maintaining overall price stability.

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