CRI听力: Tackling Inflation-a Balancing Act

Over the past five months the average price of consumer goods in China, also known as CPI, has seen a consistent year on year increase greater than the government target of 3%. Tackling inflation is one of the Chinese government's main aims for 2011 following the recent Central Economic Work Conference, a meeting of China's top leadership that sets the tone for the country's future economic development. But, as CRI's Dominic Swire finds out, this is easier said than done.



It's here in the groceries section of a supermarket that the rising cost of consumer goods is most noticeable. The price of fresh fruit in particular jumped more than 28 percent over the past year. Fresh vegetables have also risen in price over 21 percent. Wang Xiao Lu is Deputy Director of the National Economic Research Institute of the China Reform Foundation. He says in effect what we are seeing is the aftermath of the government's recent economic stimulus packages.

"I think this is mainly a money supply problem. Because of the loose monetary policy last year in order to fight the financial crisis. This has been time lagged effect."

Following the recent Central Economic Work Conference, the government is employing a number of measures designed to curb inflation. The amount of money commercial banks need to hold on to will be increased by 50 basis points, effectively reducing loans by around 350 billion yuan. And the growth of money supply, referred to as M2, will be reduced from 17 to 16 percent.

Professor Zhang Jun is Director of the China Center for Economic Studies at Shanghai's Fudan University. He says maintaining healthy economic growth at the same time as employing such tightening policies will be a difficult balancing act for the government.

"So, on one hand the government still needs to take care of spending and investment in order to keep the economy going. But at same time we also have to control excessive growth of money. If not, inflation will be even higher. So the inflation will hurt the economy as a whole, especially creating uncertainties for investment and consumption. So I think this is going to be the main framework for the next couple of years."

But the challenge to keep inflation down is made even greater due to the fact that next year will be the first year of the government's new 12th 5 year programme. Professor Zhang Jun again.

"So that means the local governments will spend more money from next year on, on investment projects and other programmes related to economic development. That would be driving even higher inflation rates in the coming years if there is no macro control over the CPI or over macro economic stability."

Of course, it's impossible to know now to what extent the government will be able to reign in the price of goods. But their success-or lack of it-will be evident for all to see, here on the shelves of the supermarket.
 
Reporting for CRI, I'm Dominic Swire.