How China Can Achieve Its Top Economic Priority of Price Stability
By Rebecca Wilder
Premier Wen Jiabao made stabilizing prices China's top economic priority for 2011. Amid the surge in world energy costs, this story didn't make the front page. However, Chinese policymakers did take their time spent out of the limelight to allow the Chinese yuan to appreciate roughly 0.3% against the U.S. dollar.
Chinese inflation is elevated and near 5% (4.9% is the official rate as of January 2011). I understand that China's growth adjustment will take time, but if you've got unwanted inflation, then domestic policy is too loose (fiscal or monetary). And in this case, it's the monetary policy that's too loose. That goes for both currency and rates policies.
On the rates front: There's a very frothy feel in domestic asset markets, specifically the property market. Low rates and easy money have sparked a(nother) property boom in China, one that policymakers are trying to tamp down.
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