Commentary
When the western advanced economies are losing control of inflation, China is praising herself as a global stabiliser with inflation staying as low as near two percent. True, China is one of the very few countries that can achieve the usual two percent inflation target at the moment. Nevertheless, we should question why this is the case. Once we learn the true cause to this from this piece, readers may find China will be able to achieve this “excellent inflation target” forever in the future! Notice that for emerging economies, inflation target is commonly set at four percent.
Although China has her capital account closed, its current account is open. This means global inflation should pass through via her imports. This is indeed true given her producer price index (PPI), inflation has been on a high single digit level (actually double digit in late 2021). Domestic money is not scarce where M2 has been growing faster at above 10 percent and M2/GDP ratio has been much higher than in western economies such as U.S. and Europe . The only known reason for consumer price index (CPI) inflation to vanish under these factors, is extraordinarily weak credit….