The storms, which disrupted food ships, might keep inflation high in February 2008, said Zhou Wenjun, an official of the cabinet's National Development and Reform Commission, The AP reported. Prices increased at annualized rate of 7.1% in January 2008.
CPI goal: 'good luck'
Economist David H. Wang told BloggingStocks Friday that China's effort is admirable, but structural and monetary policy factors will make it nearly impossible to hold inflation to the government's stated objective. (Wang lived in China for more than 20 years before moving to the United States for graduate school; he still studies China's economy.)
"I would say 'Good luck' if you think you can limit inflation with the yuan at such a low rate. That's guaranteed to import inflation on devalued dollars," Wang said. "Also, China's suppliers are still passing on price increases for raw materials, so this will show up at the retail level, in most instances."
Wang said he expects 2008 consumer price inflation in China to total about 6-7.5%, well above the government's targets. China's inflation rate for 2007 was 4.8%, well above the official target of 3%, Wang said.
China is attempting to cool its economy to control retail inflation, which is running at a 7-8% annual rate. With the yuan's rate fixed to the dollar, when international companies increase the cost of their goods/services to compensate for the lower dollar, China experiences those price increases, as well, increasing inflation. Concerning monetary policy, China increased interest rates six times in 2007 and also increased bank reserve requirements to lower inflation.
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