Surging inflation of a world in China as an outlier

HONG KONG – As inflation soars around the world, the world’s second-largest economy has kept it at bay.

Consumer prices in China rose just 1.5% in March from a year earlier, rising 0.9% in March from 2021.

By contrast, the US annual inflation rate was 8.5% in March and 7.5% in 2021, the steepest since 1982. In the eurozone, annual inflation reached a record 7.5% in April. Some 71% of the 109 emerging and developing economies experienced 5% or higher inflation in 2021, twice as large as the end of 2020, the World Bank says.


Although Chinese inflation is expected to tick up a bit more when fresh data is released this week, most economists believe it will surpass the government’s full-year target of around 3% in 2022.

Consumer demand, an important source of US inflation, is extremely weak in China right now. This is because China uses aggressive tactics, including price controls and protectionist trade actions, to keep consumers from flowing through imported inflation. Analysts say that while those strategies have helped the short run in China, they have long-term costs, and they will be able to replicate more market-oriented economies.

People scan health codes as they line up at a nucleic acid testing site to detect COVID-19 infections on May 4, 2022, at a shopping complex in Beijing, China. (Photo by Kevin Frayer / Getty Images / Getty Images)

China is less susceptible to demand-led inflation than the US because it relies more heavily on investment than on growth.

But consumption is even less influential than normal right now. Beijing provides far less stimulus than the US during the pandemic, leaving households with less money to spend. And the broader economy has been in the doldrums for months, after the government launched regulatory crackdowns on some of the technology and real-estate industries and COVID-related lockdowns in some cities.

Consumerism in China “has been weak, is weak and will be weak going forward,” said Leland Miller, chief executive officer of China Beige Book International, a research firm.

China still must contend with imported inflation from large quantities of oil, gas and grains abroad, prices of which have jumped amid supply shocks such as Russia’s invasion of Ukraine.


China’s producer-price index, a gauge of factory-gate inflation that partially reflects prices for imported raw materials, soared by 13.5% in October, the fastest in nearly 26 years, though it has retreated to an 8.3% year-over-year gain in March.

But China maintains the enormous reserves of strategic commodities it can tap to curb price pressures.

Last summer, the state reserves copper and aluminum, including the release metals. It has also released supplies of soybeans, rice and wheat.

In December, an official with China’s National Food and Strategic Reserves Administration said the country still had enough wheat stockpiled to meet demand for 1.5 years. Fitch Ratings says China had enough rice to meet 103% annual demand at the end of last year.

In December, an official with China’s National Food and Strategic Reserves Administration said the country still had enough wheat stockpiled to meet demand for 1.5 years. (Photo by Su Yang / Xinhua via Getty Images)

China can also call on state-owned enterprises and a state reserves system to act as buffers for absorbing higher import prices without passing on essential commodities, said Isabella Weber, an economist at the University of Massachusetts Amherst. For instance, when oil prices get too high, Chinese refiners are expected to eat up some of the price, subsidizing car owners’ gas costs. (Japan’s low inflation rate may be similarly due to corporate reluctance to pass higher wholesale prices.)

“The Chinese government is very focused on price stability,” Weber said. “There is a very intense consciousness around the key prices.”

China also uses trade policy to control prices, according to Chad Bown, senior fellow at the Peterson Institute for International Economics. Last year, it was home to limited exports of domestic steel production and raised export taxes at tame surging steel prices. In March 2022, China’s steel prices were down 12% from May 2021, when it began imposing export restrictions.

All those moves come with costs that mount up over time. The government must pay to maintain its reserves. Vehicle Owners for Subsidies Can Wipe Out State-Owned Refiners’ Profitability. Protectionist trade policies can lead to conflicts with other countries.


But Chinese history gives you a powerful incentive to avoid destabilizing prices. Runaway inflation in the 1930s and 1940s helped undermine the ruling Nationalist government and the Communist Party’s takeover to the open door. Some scholars say a jump in consumer inflation to 18.8% in 1988 fueled protests that culminated in a bloody crackdown at Tiananmen Square next year.

Ever since, Chinese inflation has been closely tame. It last peaked at 5.9% during the global financial crisis in 2008 when a stimulus program pushed up asset prices. From 2011 and 2021, inflation averaged just 2.6%, official data shows.

Other factors have also helped: Pork, a staple on Chinese dinner tables, weighs heavily in China’s consumer-price index, and its price plunged by 30% in 2021 as hog stocks rebuilt after a deadly African swine fever outbreak sent prices in 2018.

(AP Photo / Mark Schiefelbein, Pool / File photo / Associated Press)

The biggest question for China is whether its long-term haul over inflation becomes endemic world-wide.

Recent lockdowns that confined tens of people at home in Shanghai provided a glimpse of what inflation could look like in China. The lockdowns caused logistical bottlenecks, which made it harder for truckers to deliver goods to the city. Many residents complained about the social media that vegetable and other food prices doubled or more as a result.

Mimic Chinese protectionism could pose another risk to other countries. An import ban on palm oil, which recently hit China


Still, some economists argue that sluggish household spending on goods and services will remain a damper on the foreseeable future.

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