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Asset Prices Need be Included in Inflation Indices

Feb 11-2021   



China’s GDP surpassed 100 trillion yuan in 2020. What sort of macro policies can further foster economic vitality? In a recent media interview, Prof. Lu Feng of the NSD said that as the advantages and growth points of the Chinese economy have evolved over decades of rapid growth, new evaluation and analysis are due.

 

Prof. Lu is an expert on international business and G20 for the Ministry of Finance and rotating director of the ASEAN’s AMRO consulting team. In his latest book, Prof. Lu examines China’s external relationships against the backdrop of WTO reforms and its internal policies and economic challenges.

 

China’s macro-control capabilities have hugely improved, leading to sustainable economic growth. Meanwhile, provided that China pushes forward reforms in a range of key areas, such as urbanization, residence permit, real estate and house-purchasing mechanism, more growth potential will be sparked. This is in recognition of the reform-dependent variable that has long decided how much growth potential can be released over the long term. China’s GDP might grow by 8% this year; averaged out, annual growth would stand at 5.5% in 2020 and 2021, largely in line with pre-pandemic estimates. Though outstanding when compared with other countries, China can still do better at this stage of development by pulling the lever of reforms.

 

As governments around the world roll out big stimulus packages, prices have skyrocketed in stock markets, real estate and bond markets. Prof. Lu believed that assets prices need to be included in inflation indices in an appropriate way. The starting point could be the compilation of a series of indices of assets that are clearly related to inflation. The next step is to give weighting to these indices and CPI indices respectively so as to form a wider inflation gauge. Such adjustments are not to deny the role of macro-prudent and structural measures in reining in excessive asset price fluctuations.

 

It’s argued that macro policies should pay more attention to – or even hinge on – employment indices. Prof. Lu said that has proved to work in developed countries but China as a transitional economy needs to recognize that its macro-economic fluctuations are reflected by job creation or loss for migrant workers. For example, official unemployment rate only edged up by a mild 0.1-0.2% in 2020, a far cry from the violent contraction of the macro economy, yet it was the migrant workers who bore the blunt and saw the largest decline in employment in the reform and opening-up era. Better policies and conditions should be put in place to facilitate the transfer of rural labor force into cities while not losing sight of the unemployment rate, said Prof. Lu.

Asset Prices Need be Included in Inflation Indices

Feb 11-2021   



China’s GDP surpassed 100 trillion yuan in 2020. What sort of macro policies can further foster economic vitality? In a recent media interview, Prof. Lu Feng of the NSD said that as the advantages and growth points of the Chinese economy have evolved over decades of rapid growth, new evaluation and analysis are due.

 

Prof. Lu is an expert on international business and G20 for the Ministry of Finance and rotating director of the ASEAN’s AMRO consulting team. In his latest book, Prof. Lu examines China’s external relationships against the backdrop of WTO reforms and its internal policies and economic challenges.

 

China’s macro-control capabilities have hugely improved, leading to sustainable economic growth. Meanwhile, provided that China pushes forward reforms in a range of key areas, such as urbanization, residence permit, real estate and house-purchasing mechanism, more growth potential will be sparked. This is in recognition of the reform-dependent variable that has long decided how much growth potential can be released over the long term. China’s GDP might grow by 8% this year; averaged out, annual growth would stand at 5.5% in 2020 and 2021, largely in line with pre-pandemic estimates. Though outstanding when compared with other countries, China can still do better at this stage of development by pulling the lever of reforms.

 

As governments around the world roll out big stimulus packages, prices have skyrocketed in stock markets, real estate and bond markets. Prof. Lu believed that assets prices need to be included in inflation indices in an appropriate way. The starting point could be the compilation of a series of indices of assets that are clearly related to inflation. The next step is to give weighting to these indices and CPI indices respectively so as to form a wider inflation gauge. Such adjustments are not to deny the role of macro-prudent and structural measures in reining in excessive asset price fluctuations.

 

It’s argued that macro policies should pay more attention to – or even hinge on – employment indices. Prof. Lu said that has proved to work in developed countries but China as a transitional economy needs to recognize that its macro-economic fluctuations are reflected by job creation or loss for migrant workers. For example, official unemployment rate only edged up by a mild 0.1-0.2% in 2020, a far cry from the violent contraction of the macro economy, yet it was the migrant workers who bore the blunt and saw the largest decline in employment in the reform and opening-up era. Better policies and conditions should be put in place to facilitate the transfer of rural labor force into cities while not losing sight of the unemployment rate, said Prof. Lu.