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Lu Feng: CPI Target Aims High

Mar 28-2022   



The Consumer Price Index (CPI) target for 2022, as set in the government work report, was not merely a means to achieve certain price target, but more a guidance for realizing macro-economic growth and financial stability in the face of domestic and external challenges, said Prof. Lu Feng in the recent China Economic Observer (CEO), a forum of the NSD. He’s Jin Guang Professor of the NSD and renowned for macro-economic research.

 

Prof. Lu noted that in 2021 China’s Producer Price Index (PPI) maintained its years-long high watermark while CPI slumped at 0.9% (core CPI was at 0.8%) and missed the 3% annual target by a fairly big margin. Some structural elements to blame notwithstanding, such a CPI figure was relatively low. Against such a background, the 3% CPI target this year might mean that consumer prices could be expected to bounce back conspicuously, said Prof. Lu.

 

He interpreted the inflationary target as a way to achieve stable growth, which in turn would push the total demand to recover quickly and work through the Phillips Curve to jolt the inflation out of current inertia.

 

As large-scale monetary easing would be out of the question, what was needed was providing effective support to the real economy and galvanizing economic recovery through implementing rational macro policy, optimizing oversight policy, and pushing forward imperative reforms, while at the same time controlling the excessive impact of imported inflation, said Prof. Lu.

 

Both fiscal and monetary policies had demonstrated a proactive tinge, but uncertainties still pestered the growth target. The pandemic continued to inflict heavy tolls, as evidenced by the tightening of control measures in Shanghai and Shenzhen, two of the most economically vibrant regions of the country. Moreover, industrial oversight needed more time to become market-based, law-based, and internationally oriented. Externally, the Russia-Ukraine classes had resulted in dramatic shifts in the external environment where commodities, trade and finance were likely to be negatively impinged.

 

This year also saw China and the US moving in opposite directions in macro policy, which added another uncertainty to the overall picture. Some positive factors could be identified therein, but China ought to beware of short-term liquidity changes and rising risks due to its commitments to multilateral organizations and its creditor position vis-à-vis some developing countries, said Prof. Lu.

Lu Feng: CPI Target Aims High

Mar 28-2022   



The Consumer Price Index (CPI) target for 2022, as set in the government work report, was not merely a means to achieve certain price target, but more a guidance for realizing macro-economic growth and financial stability in the face of domestic and external challenges, said Prof. Lu Feng in the recent China Economic Observer (CEO), a forum of the NSD. He’s Jin Guang Professor of the NSD and renowned for macro-economic research.

 

Prof. Lu noted that in 2021 China’s Producer Price Index (PPI) maintained its years-long high watermark while CPI slumped at 0.9% (core CPI was at 0.8%) and missed the 3% annual target by a fairly big margin. Some structural elements to blame notwithstanding, such a CPI figure was relatively low. Against such a background, the 3% CPI target this year might mean that consumer prices could be expected to bounce back conspicuously, said Prof. Lu.

 

He interpreted the inflationary target as a way to achieve stable growth, which in turn would push the total demand to recover quickly and work through the Phillips Curve to jolt the inflation out of current inertia.

 

As large-scale monetary easing would be out of the question, what was needed was providing effective support to the real economy and galvanizing economic recovery through implementing rational macro policy, optimizing oversight policy, and pushing forward imperative reforms, while at the same time controlling the excessive impact of imported inflation, said Prof. Lu.

 

Both fiscal and monetary policies had demonstrated a proactive tinge, but uncertainties still pestered the growth target. The pandemic continued to inflict heavy tolls, as evidenced by the tightening of control measures in Shanghai and Shenzhen, two of the most economically vibrant regions of the country. Moreover, industrial oversight needed more time to become market-based, law-based, and internationally oriented. Externally, the Russia-Ukraine classes had resulted in dramatic shifts in the external environment where commodities, trade and finance were likely to be negatively impinged.

 

This year also saw China and the US moving in opposite directions in macro policy, which added another uncertainty to the overall picture. Some positive factors could be identified therein, but China ought to beware of short-term liquidity changes and rising risks due to its commitments to multilateral organizations and its creditor position vis-à-vis some developing countries, said Prof. Lu.