China’s future inflation
On October 16, 2013, Dr. Gao Shanwen, chief economist of Essence Securities, made a keynote speech in the 15th installment of “Hongru Forum”, explaining his analysis and judgement about China’s inflation. More than 150 honored guests attended the meeting and SIFL’s Fu Weigang moderated it.
Dr. Gao has made many successive predicts about the trend of inflation and the whole economy in the past. The reason, he explained, is his unique model based on demand and supply factors with continuously revise. After detailed introduction of his theory, Dr. Gao gave his judgment about future economy.
In September this year, the CPI increased 3.1% year-on-year, making the record of a new peak over the past 7 months and returning to the level of above 3%. And, Dr. Gao believed that it’s possible for CPI to rush to 3.5% by the end of the year, and it will bring some pressures for the market and policies. “Though such rise of economy is only a short cycle rise and will fall soon, we can’t tell its turning point, and we can’t predict whether the peak will be in January or February next year.” Gao said.
In the aspect of economic growth rate, since July, the economic short cycle rebound with inventory adjustments as the main reason has already come to an end and is hard to continue. In the following several months, with the declining of overseas market demands and investments, it is predicted that economic activities will decline again. “Our basic opinion is that at least up to the first half of the next year, the economic growth rate can hardly be optimistic.”
Dr. Gao pointed out, in combination of these two situations, the declining economic growth with the roaring price may last from October this year to January next year, and it would trigger heated discussion whether China’s economy has dropped into stagflation.“But in my opinion, such kind of discussion is not so meaningful, for it’s only a transient phenomenon. Because it will not take too long time, the trend of price and that of economy will maintain consistency.”
“Consider the current situation in another view, it is the rising labor cost brought by reaching Lewis Turning-Point that contributes the high price under the current weak economy.”
At the same time, Dr. Gao indicated that in the trend of China’s economy, uncertainty also exists, which mainly comes from external economic environment. Just like China’s economy in the fourth quarter last year, it suddenly rushed upwards and then fell, and this was due to external shocks. If the data of the U.S. economy are not good in the next two months, the QE policy would not quit as scheduled, or the supply of Japanese base money continue to increase, China’s economy may also rebound for a short period, and then fall in a deeper degree. But now it seems that such probability is not so great.
