An Indian customer shops at a toy store on Thursday at Yiwu International Trade City in Yiwu, Zhejiang province. The complex, the world's biggest small-commodities market, reopened after closing for the Spring Festival holiday in late January. (HUANG ZONGZHI/XINHUA)
Stable prices provide room for more policy easing to shore up economy
China, with its benign inflation rate, is capable of playing a pivotal role in helping cool soaring global inflation and will continue to ensure strong economic recovery and mild price fluctuations this year, analysts and executives said.
In marked contrast to major advanced economies, which have been plagued by surging inflation amid rising energy and food prices, China has seen its inflation levels remain low and stable, which, analysts said, provides space for further policy easing to shore up the world's second-largest economy.
"Over the past year, many advanced economies witnessed the biggest surge in inflation in 40 years," said Liu Zhicheng, director of commodity market division at the Academy of Macroeconomic Research's market and price research institute. The academy is affiliated with the National Development and Reform Commission, or NDRC, China's top economic regulatory body.
Last year, a number of developed economies, including the United Kingdom and the United States, experienced inflationary whiplash. During the first 11 months of 2022, the inflation rate, as measured by the consumer price index, was 8 percent in the United States, 8.4 percent in the eurozone and 8.9 percent in the UK, sparking public complaints and protests. Some developing countries have also suffered from high inflation.
Both the Bank of England, Britain's central bank, and the European Central Bank were expected to raise interest rates on Thursday to tame high inflation, ease the cost-of-living crisis and avoid falling into recession. The US Federal Reserve increased its key interest rate by a quarter point on Wednesday.
China has had a good record of keeping its overall price levels low and stable. Last year, the country's consumer price index rose by 2 percent year-on-year, according to the National Bureau of Statistics, which was well below the country's inflation control target of around 3 percent.
Notably, China's food inflation rate was 2.8 percent and the cost of water, electricity and fuel rose a modest 3 percent in 2022, both significantly lower than in major Western economies, Liu said.
He attributed soaring inflation across the globe to runaway energy and food prices amid geopolitical tensions and the massive fiscal and monetary easing measures in many Western countries.
China has managed to deal with imported inflationary pressures with effective measures focused on stabilizing prices of products essential for people's livelihood as well as bulk commodities.
"China's stable price levels are creating an environment that keeps economic performance stable, which also helps tame global inflation," Liu said.
While warning of headwinds from imported inflationary pressures and potential fluctuations in commodity prices, Wan Jinsong, director of the NDRC's Department of Price, said China has solid foundations as well as the confidence and capabilities to maintain overall price stability in 2023.
Wan said at a recent news conference that the country has sufficient supplies of goods essential for people's livelihood, a stable energy supply and an improved system for ensuring price and supply stability.
"Compared with the dramatic inflation surges much of the world has experienced, China has continued to have low inflation due to weak domestic demand and government measures to stabilize prices and supplies," said Zhou Maohua, an analyst at China Everbright Bank.
NBS data showed China's CPI grew by 1.8 percent year-on-year in December, while the inflation rate in the US was 6.5 percent in the same month.
Zhou estimated that China's CPI will remain at a moderate level this year given the gradual pickup in demand and the country's sufficient supply of daily necessities.
"Unlike many other economies, China has not adopted massive policy stimulus over the past few years," he said. "Given its stable inflation levels, the country has ample room and plenty of policy tools in reserves to support the economy."
Lu Ting, chief China economist at Nomura, said that his team thinks inflation is not a major concern for China in 2023, and they expect the policy stance to remain accommodative.
A top government think tank forecast that China's consumer inflation will stay mild in 2023, while cautioning that the risk of price increases beyond expectations still remains.
The Chinese Academy of Sciences' Center for Forecasting Science estimates that China's CPI will rise about 1.8 percent in 2023, while the producer price index will decline by about 0.4 percent.
Gao Ruidong, chief macroeconomist at Everbright Securities, warned that the robust recovery in consumption of services may add to "structural inflation pressures".
China is taking a more pro-growth stance, giving priority to expanding domestic demand and spurring consumption. The local governments have mapped out detailed plans in an attempt to put growth back onto the fast track.
On Tuesday, the Beijing Municipal Government released a document on key tasks for 2023, urging more efforts to boost consumption, including spurring consumption in housing, new energy vehicles and elder care.
There have been initial signs of recovery in consumption thanks to such policies in other provincial-level regions.
In Guangdong province, Guangzhou's Beijing Road shopping area achieved a business turnover of 345 million yuan ($51.3 million) in the weeklong Spring Festival holiday, up 19.4 percent year-on-year, official data showed.
Gao said in an article published in China Finance magazine that the country will also likely see a notable rebound in consumption of services, such as transportation, catering, accommodation and entertainment, and prices for services will go up in the post-COVID period.
He said the government should take more steps to keep prices stable, with a key focus on ensuring the supply of food and energy, assisting companies to stabilize employment and promoting the rebound of services industry.