China should keep inflation around 4% to boost activity, household wealth, economist says
“The decline in wealth is seriously damaging to the economy,” said Cheung, who is known for his pro-market stances. “Residents’ incomes are transitory, but their wealth is not. Declining wealth means that residents’ expectations for future income are permanently falling.”
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CPI rose 0.3 per cent from January to November, year on year, far behind the government target of 3 per cent.
Teng Tai, director of WANB Institute, a Beijing-based non-profit think tank, said the government should not underestimate the drag deflation can exert on the job market and economic growth.
“The current deflation in China is one of the most serious economic challenges it has to face,” he said. “To reverse this trend, China needs to move away from the traditional policy mindset of preventing inflation and exchange rate depreciation, and perform a U-turn.”
Core inflation, which excludes food and fuel prices, stood at 0.6 per cent in November. That number was lower than the average 1.5 per cent observed from 2012 to 2021, indicating that China is still facing a mild economic recovery and poor demand, said Ding Shuang, chief Greater China economist at Standard Chartered Bank.
“Beijing’s policies should address how to boost confidence in the private sector, [as well as] investment and consumption, and create healthy and sustainable internal economic impetus through reforms,” Ding said.