Economic Daily:
How does the People's Bank of China (PBOC) evaluate the inflation situation this year? Will the core consumer price index (CPI) remain low? Some have analyzed that the current inflation rate is underestimated because the CPI doesn't fully reflect the price changes in the market. What's the PBOC's take on this? Thank you.
Chen Yulu:
Price stability is the core objective of the monetary policy. According to the CPI data released by the National Bureau of Statistics (NBS) on Jan. 11, the year-on-year growth of the CPI in December turned from negative to positive, and 2020's annual CPI expanded 2.5% compared to the previous year. The NBS immediately interpreted this data and noted that the CPI had a relatively high growth rate on a month-on-month basis at the end of 2020, driven by the rise in pork and refined oil products prices. We had another good grain harvest in 2020, and the hog production capacity has basically recovered to the levels seen in previous normal years. Therefore, in the medium and long term, we believe that the possibility of a continuous sharp increase in month-on-month CPI growth is relatively small. Meanwhile, we do need to pay attention to changes to the core CPI. As the growth of personal income recovers, coupled with the recurrence of the epidemic in some locations and service consumption remaining constrained to some extent, the core CPI which excludes food and energy prices remains low.
Next, with China's steady economic recovery and the gradual revival of domestic consumption demand, we believe that the core CPI is expected to continue to rebound. In general, the price level in China will see a moderate rise in 2021. Influenced by the situation during this same period last year, it is predicted that the year-on-year growth of the CPI this year will rise first and then stabilize.
As for the question about whether the CPI should include changes to asset prices, this remains an important topic for academic discussion. None of the major economies in the world has directly included price changes of some specific assets in their CPI. The central bank has kept a close eye on asset prices in important sectors while paying attention to the country's price level. To effectively safeguard financial stability, we have implemented macroprudential policies to guard against macro-financial risks caused by sharp fluctuations in asset prices. Thank you.
