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Huang Yiping: Coping with US Inflation

Aug 16-2021   



On a steady rise since March this year, the US inflation rate has recently touched a new high in 13 years. In a media interview, Prof. Huang Yiping says that the US inflation amounts to a global issue, given the Federal Reserve’s de facto role as the world’s central bank. Prof. Huang is the Associate Dean of the NSD and Director of the Institute of Digital Finance at PKU.

 

One consequence of US inflation is its spillover effect, putting inflationary pressure on the rest of the world in what’s known as ‘imported inflation’. Another concern is that such a high inflation rate might cause the Federal Reserve to speed up the pace of its normal monetary policy. If that does happen, China should reconsider such issues as currency depreciation, capital outflow, increase in market interest rate, and decrease in asset prices, says Prof. Huang. Though the consequences might not be severe, it’s still advisable to weigh the possibilities.

 

What’s behind the US inflation, which hasn’t been a significant issue for quite a long time? Prof. Huang believes it’s due to supply-side factors. To jolt the economy out of the pandemic-induced doldrum, the US has pledged immense funds for infrastructure construction, a market signal that has duly resulted in sharp price increase for commodities. However, the supply side is still hamstrung and can only meet part of the demand, leaving a substantial gap between supply and demand.

 

The stark contrast between weak economic activities and strong demand has much to do with America’s cash splashing. Its fiscal policy and infrastructure bill, the latter being still under deliberation, are bound to sustain inflation for a long period.

 

China needs to address its inflationary pressure. Though its CPI has only risen mildly, its PPI has shot up. As high input costs meet with lackluster retail prices, companies are seeing their profit margins squeezed. Manufacturing firms on the mid and low end of value chains, especially micro, small, and medium-sized producers, are likely to have a tough time this year, says Prof. Huang.

 

Another challenge for China as an emerging market is the possibility of large capital inflows and outflows in a short period of time. Prof. Huang advises working out some solutions for managing cross-border capital flows and designing macro-prudential policy to ensure the stability of the financial system.

 

In the interview, Prof. Huang also talks about the pandemic’s impact on global growth and the fast development of digital economy.

Huang Yiping: Coping with US Inflation

Aug 16-2021   



On a steady rise since March this year, the US inflation rate has recently touched a new high in 13 years. In a media interview, Prof. Huang Yiping says that the US inflation amounts to a global issue, given the Federal Reserve’s de facto role as the world’s central bank. Prof. Huang is the Associate Dean of the NSD and Director of the Institute of Digital Finance at PKU.

 

One consequence of US inflation is its spillover effect, putting inflationary pressure on the rest of the world in what’s known as ‘imported inflation’. Another concern is that such a high inflation rate might cause the Federal Reserve to speed up the pace of its normal monetary policy. If that does happen, China should reconsider such issues as currency depreciation, capital outflow, increase in market interest rate, and decrease in asset prices, says Prof. Huang. Though the consequences might not be severe, it’s still advisable to weigh the possibilities.

 

What’s behind the US inflation, which hasn’t been a significant issue for quite a long time? Prof. Huang believes it’s due to supply-side factors. To jolt the economy out of the pandemic-induced doldrum, the US has pledged immense funds for infrastructure construction, a market signal that has duly resulted in sharp price increase for commodities. However, the supply side is still hamstrung and can only meet part of the demand, leaving a substantial gap between supply and demand.

 

The stark contrast between weak economic activities and strong demand has much to do with America’s cash splashing. Its fiscal policy and infrastructure bill, the latter being still under deliberation, are bound to sustain inflation for a long period.

 

China needs to address its inflationary pressure. Though its CPI has only risen mildly, its PPI has shot up. As high input costs meet with lackluster retail prices, companies are seeing their profit margins squeezed. Manufacturing firms on the mid and low end of value chains, especially micro, small, and medium-sized producers, are likely to have a tough time this year, says Prof. Huang.

 

Another challenge for China as an emerging market is the possibility of large capital inflows and outflows in a short period of time. Prof. Huang advises working out some solutions for managing cross-border capital flows and designing macro-prudential policy to ensure the stability of the financial system.

 

In the interview, Prof. Huang also talks about the pandemic’s impact on global growth and the fast development of digital economy.