Chinese Inflation Eases As Monetary Resolutions Take Effect

Steven Bobson, Europe & Americas Editor
May 12, 2011 /

World’s largest economy to-be China is starting to loosen up inflation in the area as the government’s efforts to fight it are beginning to take effect.

Before, China had a very liberal economic policy which became the primary cause of the upward surge of prices in the country, said Dragonomics research director Andrew Batson.

The Chinese government had started to impose measures to reduce food, fuel and housing costs in October last year but because of the continued tension of higher prices, the inflation extended to April this year which caused hundreds of drivers in Shanghai to convene in three days of protests against rising fees and fuel prices.

The mass action was a clear sign for Beijing that it must succeed in taming inflation. Taking it as a warning, the government decided to start to tightening policies of which effects are already starting to surface today.

Because of it, the annual inflation rate fell from April last year to 5.3 percent in April this year. Compared to last March’s result, which marked a 5.4 percent three-year high, the figure is lesser.

The main factor behind the overall inflation is the rise in food prices. The food price fluctuations are currently persistently strong, increasing at an annual rate of 11.2 percent, but when compared from last month’s high of 11.7 percent, it is slightly lower.

Brian Jackson, a Hong Kong-based economist with the Royal Bank of Canada, expects that with the situation, China will let its central bank continue to raise borrowing costs and will allow the yuan to strengthen further against the US dollar.

On the other hand, Batson expects prices to come down in the coming months.


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