China may have a reputation for pursuing growth at all costs. But the one thing China will not sacrifice is price stability
a reputation for pursuing growth at all costs. It has tolerated grey skies, red ink, displaced farmers and punishing work hours. But the one thing China will not sacrifice is price stability. China’s record in containing price pressure is impressive for an emerging economy. Consumer-price inflation has averaged only 2.3% over the past 20 years.
After Russia invaded Ukraine in February, China began to feel some of the inflationary pressure that has afflicted. Inflation rose from 0.9% in February to 2.7% in July, close to the government’s ceiling of 3%. Fuel for vehicles rose by 14% in the space of five months, and pork prices jumped by over 25% in July alone, as farmers hoarded hogs in expectation of even higher prices to come.
What does that mean for the rest of the world? It was once fashionable to accuse China of exporting deflation, thanks to its cheap currency and cheap labour. But this year the worry has been the opposite. To quash outbreaks of covid-19, the government has repeatedly imposed costly lockdowns on export hubs like Shenzhen and Shanghai. This led to fears that China’s forever war against covid would make it harder for the rest of the world to win its own battle against inflation.
It need not have worried quite so much. Although China accounts for a large share of American imports of goods, those represent a surprisingly small share of consumer spending, which is dominated by services and other items produced at home. Moreover, the price Americans pay for imports from China has increased only modestly this year . The cost of imports from other trading partners, including America’s “near-shore” neighbours Mexico and Canada, has risen much faster.
to the livelihoods and peace of mind of many of the country’s residents. But it is not so far a threat to price stability in the rest of the world.
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