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Wen Warns Over Inflation

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China Power

Wen Warns Over Inflation

Chinese Premier Wen Jiabao warns that inflation is likely to exceed the government’s 4 percent goal for the year.

China is unlikely to meet its inflation target of 4 percent for the year, but should be able to keep it within 5 percent, according to Chinese Premier Wen Jiabao.

‘China’s financial situation will still be among the best in the world this year, with economic growth kept above 8 to 9 percent, and CPI controlled under 5 percent,’ Wen reportedly told Hong Kong TV during his current visit to the UK.

The remarks were somewhat more pessimistic than comments he made last week in the Financial Times, when he argued that:  

‘China has made capping price rises the priority of macro-economic regulation and introduced a host of targeted policies. These have worked…We are confident price rises will be firmly under control this year.’

As noted by Minxin Pei in an article in The Diplomat last month, China’s leadership is worried about the potentially destabilizing impact of rapidly rising inflation at a time when it already has a wary eye on any signs of a popular protest movement akin to the Arab Spring.

As I noted earlier this month, inflation in April did actually ease, with the annual inflation rate falling to 5.3 percent from a year earlier, down from a three-year high of 5.4 percent in March. Food price inflation has been of particular concern, and remained high in April, increasing at an annual rate of 11.2 percent, although this figure also marked a slowing from a March high of 11.7 percent.

But as IHS Global Insight’s China analyst Alastair Thornton told me today, Wen’s comments are ‘giving voice to something the markets have long realized – inflation is almost guaranteed to come in over target this year.’

‘I would say that this year’s soft landing has been secured,’ Thornton told me. ‘But structural problems are just getting worse, and that hinders the medium-term outlook.’