'China has 'room' for imported inflation, but economic risks rising'

Beijing [China], April 1: China has sufficient leeway to cope with imported inflationary shocks from Middle East instability, a monetary-policy adviser to the People's Bank of China said, but the country must balance those pressures with economic-growth risks.
Huang Yiping, a member of the PBOC's Monetary Policy Committee, said that China was already experiencing upwards pressure on prices.
But China's consumer price index (CPI), a key gauge of inflation, has remained below its official target of 2 per cent in recent years, he noted, speaking at a media briefing in Beijing on Tuesday.
"Relatively, we have a certain degree of room to absorb or accept imported inflationary pressures," said Huang, who is also the dean of Peking
University's National School of Development, though he noted that the scale of imported inflationary pressure remains contingent on the length and severity of the conflict.
"What I am most worried about is that the rise in energy prices will hit companies' profitability," Huang added. "Such a squeeze would be very detrimental to the real economy."
Economies around the world are bracing for an inflationary shock.
The US-Israel conflict with Iran - now in its fifth week - has not only sent global energy prices soaring, but has also driven up costs for key industrial inputs, including chemicals and metals.
Meanwhile, China has been grappling with deflationary pressures in recent years, amid weak domestic demand and entrenched oversupply that have weighed on prices.
The nation's CPI remained flat last year - a trend that authorities mainly attributed to a significant decline in food and energy prices.
It rose 1.3 per cent in February from a year earlier, marking the largest increase recorded in three years.
Monetary policy would need to react if the imported pressures translate to widespread domestic inflation, but its room to offset such shocks is limited, Huang noted.
"We need to balance between rising inflation and downward pressures on growth," he said.Signs of the imported inflationary pressures are already surfacing.
The National Bureau of Statistics on Tuesday released its official gauge for factory activity in March, showing a surge in price sub-indices.
"Affected by factors such as the current geopolitical conflicts in the Middle East, the prices of raw materials such as oil and chemicals have risen sharply," said Huo Lihui, chief statistician at the bureau's service industry survey centre.
China's manufacturing purchasing managers' index rose to 50.4 percent in March, up from 49 in February and reaching its fastest pace in a year. The 50-mark separates growth from contraction.
Source: Qatar Tribune