Inflation figures versus public feelings
Updated: 2014-01-09 18:08
By Xin Zhiming (chinadaily.com.cn)
China's consumer inflation came in at 2.5 percent in December year-on-year, much lower than in the previous month.
The inflation for the entire year was 2.6 percent, far lower than the country's preset ceiling of 3.5 percent for 2013.
The better-than-expected readings are set to be a boon for the capital market and the economy as a whole, because they eliminate the possibility of further monetary tightening measures meant to curb inflation.
The reined-in money market situation has contributed to the recent stock market sell-off and is behind the weak momentum of economic growth.
A problem policymakers must tackle is a public that does not seem to believe the inflation figures as it faces hovering home prices and fast-rising food costs.
Major Chinese-language news portals are awash with netizens who are criticizing the National Bureau of Statistics (NBS) for allegedly whitewashing the inflationary scenario.
Although the bureau is the most authoritative statistical agency in China, this is not the first time that it has been questioned.
Admittedly, the price of housing — a major concern of the public — is not a factor the NBS weighs in the consumer inflation basket, which only takes into account the cost of rent.
Moreover, the public is more aware of current prices, while the NBS monitors year-on-year change. This explains, for the most part, the gap between public sentiment and the abated seriousness of inflation indicated by the NBS data.
In other words, while the NBS data may not be problematic, the public's complaints about high prices are also justifiable.
To bridge that gap, policymakers need to gradually improve the real purchasing power of the people so that their income growth could outperform the pace of inflation.
The State Council announced a raise in the level of corporate retirement pensions by 10 percent on Wednesday, a move that will benefit 74 million retirees. It one of the right moves needed to alleviate public anxiety about inflation.
If all people had their income increased, however, the flood of money could, ironically, push up inflation, offsetting the impact of higher pay.
In the long run, the authorities need to properly manage the supply of money to keep inflation at bay.
If American economist Milton Friedman is right in claiming that "inflation is always and everywhere a monetary phenomenon", policymakers must avoid abrupt and dramatic increases in money supply that will fuel the fire of inflation.